Belarusian banks to see a decrease in private deposits in all currencies
Private deposits in the Belarusian banking system have decreased. In 2016, Belarusians earned more than USD 600 million on interest from keeping funds in the Belarusian banks. Given the interest of the National Bank and enterprises in cheaper resource base, interest rates on the deposit market will continue to decrease, leading to the reduced interest of the population in deposits, hence, further decreasing deposits in all currencies in banks.
According to the National Bank, in March 2017, household deposits in national currency decreased BYN 8.3 million and deposits in foreign currency by USD 47.1 million. The decrease in deposits came amid a decrease in interest rates on deposits. In March, average interest rates on time deposits in foreign currency were 1.8% per annum and 10.0% per annum in BYN. Over the past three months, the yield on deposits in the national currency has decreased by 3.4 percentage points, and by 1.6 percentage points on currency deposits.
In previous years, household deposits constituted a significant source of income. In 2016, the population earned at least USD 600 million by placing deposits in the banking system. Taking into account private net currency sales in 2016, totalling USD 1.9 billion, savings outside the banking system have reduced less rapidly due to spending of interest on deposits for current consumption. Amid the absence of reliable borrowers and a lack of new projects from legal entities, banks invested currency funds of citizens in the National Bank bonds, which allowed refinancing external and internal government liabilities, albeit increased the debt burden on the budget due to interest payments on liabilities.
The National Bank carries out a consistent policy aimed at reducing interest rates on deposits. This made it possible to reduce the public debt servicing costs, the debt burden on enterprises, and people’s yield on interest, some of which then appeared on the foreign exchange market. Due to the underdeveloped stock market, Belarusians have a limited choice of investment instruments, while bonds of legal entities do not guarantee the return of funds, unlike deposits. The current yield on currency deposits is insufficient to retain people’s interest in deposits in the banking system, and the rates on rouble deposits are close to the projected annual inflation rate and do not ensure real protection for savings.
That said, household deposits in all currencies are likely to decrease. The National Bank is not concerned about rouble deposits outflow due to excess liquidity in the banking system. If currency deposits decrease significantly in the banking system, banks would increase interest rates on currency deposits. By allowing private persons to purchase government currency liabilities, the banking system would lose some revenue, while the National Bank would reduce public debt servicing costs.
Overall, the population responded to a decrease in yield on savings deposits, with decreased household deposits in banks. Amid the National Bank’s and enterprises’ interest in lowering the resource base costs, the population would use deposits as an alternative option for preserving funds, choosing short-term deposits; that said, overall deposits would decrease.
Amid budgetary cuts on social protection, the Belarusian public sector is experiencing a management crisis and a balance shift in the state resource redistribution system. The authorities are forced to revise their most unpopular decisions during the implementation due to the pressure from affected social groups. The state is unlikely to oppose to some civil society and opposition organisations in strengthening their role in society in order to retain touch with the population and to be able to respond to the most harsh criticism of state initiatives.
The Architecture and Construction Ministry has acknowledged that the decree No 585 on assistance to large and young families in building and buying housing was prematurely rescinded.
The authorities are often forced to revise their decisions on curtailing social assistance to different social groups during their implementation, without preliminary impact assessment and feedback from the population, so as they lead to the growth in social tension. Due to the centralised decision making, languishing state resources and the lack of public debate as a balancing instrument in issues related to social protection, the state administration is losing control of the population.
Perhaps, the compensatory mechanisms of the state apparatus lack the time to adjust to dwindling state resources for supporting the existing social model, even in a reduced form. The authorities have completely or partially paralysed operations of independent public institutions and representative bodies, through which they could monitor public moods and receive feedback from the population, such as local councils, the parliament, political parties and NGOs. Last year, under the pressure of the authorities, the last independent institute for measuring public sentiment, IISEPS, suspended operations.
President Lukashenka’s self-removal from the decision-making on current socio-economic issues, also could have affected the state apparatus’ operations. The president has always been very sensitive about adopting unpopular decisions which could lower his popular support, hence demanded a careful preliminary assessment of such decisions. However, recently, especially after the introduction of the tax on social dependants, the president has mainly focused on the foreign policy agenda.
Hence, a lacuna has formed in the state decision-making after the president reduced participation in the current socio-economic policy formation, which leads to an increase in manifestations of dysfunction in the public administration.