Belarusian economy not in a position to justify government’s inflated forecasts
The main reasons for why 2013 forecast indicators were far from being met include the low quality of the so-called ‘forecast’ as well as significant changes in key external markets for Belarus. However, for political reasons, Belarusian authorities are not prepared to give up ambitious ‘growth rates’ for next year. They risk not only repeating past mistakes, but also continuing along the dangerous path of unbalanced economic development.
On October 31st the first vice-prime minister, Semashko, spoke at Belarus’ parliament and announced a potential two-percent fall in the volume of industrial production by the end of 2013. (According to government plans, the yearly growth in the industrial production index was expected at 7% based on 2012 prices).
In the first nine months of 2013, industrial production fell by 4.6%. Two of three of the most tangible industries - chemical industry and oil refining - show a significant fall in the same period of 2012. Only the food industry noted some growth in production, however, this dynamic is far from the parameters forecast. Of 15 subsections of industry, six recorded drops in production and only 3 peripheral branches exceeded the projected growth of 7%.
The main reasons for the failure to fulfill forecasts include the low quality of the so-called ‘forecasts’ as well as significant changes in key external markets for Belarus. Ensuring significant paces of growth in 2013 seemed dubious from the outset due to the extremely high risk of the comparative base shaped in 2012 thanks to famous schemes for producing "solvent", "lubricant" and "biodiesel".
By late 2012, it was already clear that it was not possible for new schemes of a similar scale to emerge in the near future. However, such reasoning was ignored by experts compiling the forecasts, who set parameters for industry which were clearly unrealistic. The fall in demand on external markets for the production of machinery and problems in selling potash fertilizer as a result of the conflict concerning the Belarusian Potash Company merely worsened the situation. The overloaded warehouses and manipulation of statistical data also did not help in fulfilling these optimistic plans. Inflated parameters for industrial production also led to an entire series of corrections, above all, in budgets. Far from fulfilling the annual income tax plans, a shortfall of income from foreign trade may be observed. This meant that additional income sources needed to be identified.
Meanwhile, organizations and agencies specialized in producing forecast parameters for 2014 attempted to avoid past mistakes and compiled a much more modest and realistic plan for the paces of growth. However, Belarus’ senior management, for political reasons, is unlikely to give up their ambitious ‘development plans’ for the year preceding the presidential elections. This approach has already made itself clear; last month, the parameter forecast project for 2014 was corrected in a more ‘optimistic’ manner. It is evident that plans which do not correspond with the realities of the current situation (for example, totally unjustified rises in the volume of production and sale of potash fertilizer for export) will once again not be fulfilled in terms of many parameters.
And so, by rejecting realistic evaluations of the economic situation, Belarus’ senior political leadership will continue in 2014 along the dangerous path of unbalanced economic development.
The Labour and the Tax Ministries are considering the possibility to include persons engaged in some economic activity without forming a legal entity in the social security system. When the decree No 337 comes into effect, the number of private entrepreneurs is likely to reduce due to the possibility of reducing the tax burden when switching to a tax payment as an individual. 95% of self-employed, including PE, pay insurance premiums on the basis of the minimum wage. The number of self-employed citizens is expected to increase, the number of insurance contributions to the pension system from PE will decrease, the number of citizens who will pay a fee to finance government spending will decrease by several tens. Self-employed citizens have the alternative not to pay social security fees and save resources for future pensions, which, given the gradual restriction by the state of pension requirements could be a more long-sighted option.