Belarusian government aims to achieve economic growth without monetary financing
The economic authorities have decided against monetary financing to stimulate economic growth. Inflation in the economy has slowed down, albeit the economic performance was declining in the past two years due to the absence of incentives. The authorities are unlikely to start pumping the economy to stimulate growth due to the short-term potential economic impact and the loss of chance to resume credit programmes with international donors.
At a recent meeting, the Belarusian authorities decided against monetary financing of the economy. They will preserve the current credit and monetary policy, while retaining the task to increase wages to USD 500 per month. Joint actions of the National Bank and the government to curb the growth in credit to the economy led to a slowdown in inflation and some improvement in the economy in 2017. According to preliminary reports, in January 2017, the index of industrial production totalled 105.9% compared with January 2016, annual inflation slowed to 9.5%, the average interest rate on the credit market in January 2017 was 19.6%, and decreased by 15 per cent points in the last year.
In 2015 - 2016, the Belarusian economy was stagnating, mainly due to the tight monetary policy of the National Bank and the government. In order to overcome the devaluation, the growth in money supply in 2016 was limited to 19% with inflation at 10.6%, soft loans to industry were reduced, terms of loans were tightened and soft loans for housing construction to citizens were minimised. As a result, on the one hand, the national currency stabilized and strengthened against the US Dollar by 5.5% over the year. However, on the other hand, due to curbed loans in the economy, non-payments have grown in number, so as bankruptcies of state enterprises and almost 100000 people were laid off in different economic sectors.
In the given circumstances, the government was tempted to resume monetary funding of the economy to stimulate economic growth and achieve the task of the average wage at USD 500. In the short-term, that would lead to economic growth and wages would have grown up to USD 500 for some two months, however, later, the Belarusian rouble would have devaluated, financial health of successful businesses would have deteriorated, and wages would have dropped to USD 300 - USD 350 per months. These short-term economic effects and potential termination of talks on a new loan programme with the IMF and other international lenders, as well as negative effects on the economy have outweighed the need for a short-term conservation of the current economic model. Therefore, the authorities will continue implementing the tight monetary policy, albeit with minimal economic growth. That said, economic growth would depend not only on the actions of the authorities, but also on numerous factors beyond their control.
The stagnation in the economy for the past two consecutive years has created the preconditions for the resumption of the previously used monetary financing practice to stimulate the economy. However, the Belarusian government will preserve a tight monetary policy, albeit may stimulate some economic sectors.
According to Decree No. 221 of June 23rd, 2017, deadlines for the completion of foreign trade operations have been extended from 90 to 180 days for exports and from 60 to 90 days for imports. Delayed payments entailed a fine up to 2% of the transaction cost for each day of the delay, but could not exceed the total cost of the transaction. Most companies, when working with new counterparties, require a deferred payment for a period of three to six months. Due to the new regulation, violations are likely to reduce in number, so as the fines. Trade enterprises are likely to expand the assortment list due to the supply of new products in small lots, and the assortment list of exported Belarusian goods could expand, too. The new terms for completing foreign trade transactions would enable medium and small companies on the foreign trade market, exporters and importers are likely to grow in number and the geography of export-import operations could expand.