Belarus to speed up lapse in subsidies in anticipation of new IMF loan
After the meeting between the Belarusian delegation and IMF representatives, preparations for the country credit programme continued. Belarus has already fulfilled previous IMF requirements. The need to repay foreign debt is likely to prompt Belarus to speed up the transition to 100% non-subsidised utility services, so that the new loan agreement could be signed in the next half a year.
Following the talks with the Belarusian Delegation, held on October 5th - 7th, 2016 in Washington D.C., the IMF agreed to continue preparations for the IMF loan programme for Belarus. The key issues for approval remain the following: public sector reform, reduction in directed lending to the economy, raising utility tariffs to 100% cost recovery and preserving exchange rate flexibility. In the case an agreement is reached, Belarus could count on a USD 3 billion loan for 10 years at 2.3% per annum.
Belarus either has fulfilled most of the previous IMF requirements, or is implementing them. In 2017, the National Bank will implement inflation targeting with a view to reduce it to 9%. Thanks to tight monetary and lending policy, macroeconomic stabilisation has been achieved, including significant reductions in concessional lending for housing construction, which led to an increase in the net supply of foreign currency on the domestic currency market by the population. With a view to further liberalisation on the foreign exchange market, the requirement for businesses to sell foreign exchange earnings has been reduced from 30% to 20%. Asset Management Agency has been created to manage problem credits in agriculture. Banks’ assets have been evaluated: Belinvestbank will have to increase its authorized capital, and Belagroprombank will receive a subordinated loan.
The main obstacles for signing the agreement are privatisation and deadlines for dropping subsidies for housing and communal services costs for the population. Amid cuts in subsidies for the economy, the authorities will be prompted to agree to carry out the privatisation. In 2017, Belarus will launch five privatisation projects for medium-sized enterprises. In 2016, the population paid only 58% of the housing and utility services cost. In 2017, they should pay 75%, and by late 2018 - 100%. Amid mass lay-offs in the economy, the main problem is the growth of non-payments due to the increased housing and utility costs.
As of October 1st, 2016, the most vulnerable social groups will receive targeted social subsidies to cover utilities costs. Some groups of citizens are already paying 100% of the utility value. In 2017, Belarus will have to repay USD 3.1 billion of public debt, which may prompt the authorities to speed up the deadlines for the lapse in subsidies for housing and utilities costs. If other IMF requirements are met, Belarus may sign a loan agreement with the IMF in late 2016 - early 2017.
The IMF will continue talks with Belarus in order to clarify the deadlines for some IMF recommendations. Belarus may speed up meeting the IMF requirements, so as the IMF loan would attract new creditors to Belarus and would boost demand for government securities.
President Lukashenka has met with the head of Chechnya Ramzan Kadyrov, who visited Minsk and the Minsk Automobile Plant. Minsk has always sought to have independent links with Russian regional elites, partially, to compensate for the Kremlin's diminishing interest in Belarus. In recent years, Belarus’ contacts with the Russian regions have been extremely intense. However, with some leaders of Russian regions, primarily heads of large republics, communication was more difficult to build. As many analysts in Minsk suggested, Minsk could regard contacts between President Lukashenka and the head of Chechnya as an additional communication channel for relieving tension in relations with the Kremlin. However, most likely, a trusting relationship with Kadyrov is a value for Minsk as such, provided Kadyrov’s broad business and political interests, and a high degree of autonomy for the Chechen leader from the Kremlin.