Belarusian economy-2015 risk factors: banking sector and wage growth
Amid slowdown in economic activity, Belarus has restored wage growth. Such a situation has occurred due to the National Bank’s measures aiming to stabilise the national currency. Further wage growth and potential problems in the banking sector due to asset quality deterioration may become the main domestic risk factors for the Belarusian economy in 2015.
In early 2015, Belarus increased the share of the Russian rouble in the basket of currencies up to 40%, its strengthening therefore has led to wage growth from USD 400 to USD 450. Simultaneously, since early 2015, the economy has been reducing its debt in the national currency to the banking sector. Due to economic slowdown, businesses have lowered their demand for expensive loans and the population has reduced the volumes of consumer loans fearing of possible problems with repayments amid mass lay-offs at enterprises.
The National Bank is the main culprit of such a trend. In order to reduce devaluation risks, the National Bank very swiftly lifted the restrictions on sales of foreign currency, which were in place during the devaluation. It also increased the cost of available resources in banks in order to support liquidity and, together with the government undertook measures to limit lending to a number of state programmes. All these actions have led to a stabilisation on the domestic currency market and of the national currency exchange rate; interest rates on deposits have ensured the outflow of rouble resources from the currency market; high interest rates on loans have hampered growth of lending to enterprises and encouraged repayment of earlier loans.
Amid the upcoming presidential campaign in late 2015, wages in Belarus may continue to grow. As a result, the demand for foreign currency and consumer imports may increase. In addition, demand for domestic products on the domestic and external markets may decline due to deterioration of the competitiveness and increased costs.
After the devaluation, the banking sector requires additional resources. Previously, half of the cash flow was through banks with Russian capital, which now have limited access to international financial markets. Due to deteriorating financial health of industrial enterprises, the volume of non-performing loans, which is already high, will swiftly increase. If creditors are unable to repay loans, banks might be unable to recover credit funds in full due to significantly exaggerated value of collateral assets. Amid the lack of funding and deterioration of the assets’ quality, any problem with customer service may lead to a collapse of some banks and the banking system as a whole. If so, the National Bank would support rouble obligations only and would be unable to repay foreign currency liabilities to depositors in full.
The National Bank has managed to overcome the devaluation expectations swiftly, but created the preconditions for new economic problems to emerge. Wage growth and expected deterioration in asset quality in the banking system would be the main risk factors for the Belarusian economy in 2015.
The Belarusian authorities have launched a discussion on the moratorium or abolition of the death penalty under the pressure of Belarusian human rights activists and international community. Apparently, the authorities are interested in monitoring public sentiments and response to the possible abolition of the capital punishment. The introduction of a moratorium on the death penalty would depend on the dynamics in Belarusian-European relations, efforts of the civil society organisations and Western capitals.
In Grodno last week, the possibility of abolishing the death penalty in Belarus or introducing a moratorium was discussed.
The Belarusian authorities are likely to continue to support the death penalty in Belarus. During his rule, President Lukashenka pardoned only one person, and courts sentenced to death more than 400 people since the early 1990s. Over the past year, Belarusian courts sentenced to death several persons and one person was executed.
There are no recent independent polls about people’s attitude about the death penalty in Belarus. Apparently, this issue is not a priority for the population. In many ways, public opinion about the abolition of the death penalty would depend on the tone of the state-owned media reports.
That said, the Belarusian Orthodox Church and the Roman-Catholic Church stand for the abolition of the capital punishment, however their efforts in this regard only limit to public statements about their stance. Simultaneously, the authorities could have influenced public opinion about the death penalty through a focused media campaign in the state media. As they did, for example, with the nuclear power plant construction in Astravets. Initially unpopular project of the NPP construction was broadly promoted in the state media, and eventually, according to independent pollsters, was accepted by most population.