Audit at state enterprises in order to assess financial state of Belarusian economy

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October 24, 2016 11:54

Belarus will carry out financial audit of state enterprises with a view to identifying fiscal risks and improve state property management. As of January 1st, 2016, the state managed industrial enterprises, which accounted for over 72% of industrial output. The audit may lead to further layoffs at state enterprises, but unlikely to result in numerous controlled bankruptcies, except for a few cases.

On October 19th, 2016, Finance and Economy Ministry representatives announced a financial diagnosis for each state-owned enterprise and an audit for every large enterprise. All companies have been divided into three groups depending on the degree of necessary state intervention in their financial and general management. The main purpose of the audit is to identify potential fiscal risks, improve state property management by separating the ownership and control functions, and simplify equity investment mechanism.

As of January 1st, 2016, there were 448 state-owned enterprises and 702 organizations with state ownership in Belarus. They account for over 72% of industrial output. In some spheres (eg mining, oil refining, and electric power), the state-controlled enterprises accounted for over 95% of the production. That said, one in eight state-owned enterprises and every third company with state ownership were unprofitable. The most unprofitable enterprises in Belarus in H1 2016 were MAZ, GrodnoAzot, and cement plants - all controlled by the state.

The audit will enable the government to obtain a complete financial picture of the public sector. The audit, depending on its outcomes, will facilitate the final decision making about the future fate of unprofitable enterprises. A controlled bankruptcy procedure would be applied to the enterprises if their maintenance costs exceed the effects from their activity. An alternative option would be to transfer such enterprises to the Asset Management Agency. If the audit reveals excess workforce, layoffs will be carried out and re-trainings offered to the laid off workers. That said, unemployment benefits would be increased to BYN 175.5 per months (a minimum living standard).

For the state, the best solution would be to translate the enterprises' debts to the capital and allow new shareholders in the company management. However, this solution contradicts interests of the banking sector, and it may difficult to find the new shareholders amid owners’ subsidiary liability practices. In most cases, the government will continue to provide financial support to enterprises and may redeem debts of the most important ones. Bankruptcy in most cases will be out of the equation.

For the first time in Belarus’ modern history, public sector will be subjected to a complete financial analysis. The state is likely to stop interfering with activities of enterprises only in the most desperate cases. Most enterprises will continue operations after receiving state support and carrying out layoffs.

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