Belarusian National Bank set to reduce public debt servicing costs
The National Bank has decided to change the size of mandatory deductions to the reserve fund. Due to an increase in people’s expenses in 2016, the Belarusian international reserves grew and all due public and domestic debt payments were made. By reducing interest rates on currency deposits, the NB would save circa USD 25 million to refinance public debt.
As of February 1st, 2017, the National Bank will increase the size of compulsory contributions by banks to the reserves fund from corporate and private foreign assets from 7.5% to 11%, and will reduce the contributions in national currency from 7.5% to 4%. When the new rules take effect, banks’ cost of fundraising in foreign currency will increase, which will reduce interest rates on foreign currency deposits. Simultaneously, banks may leave interest rates on rouble deposits unchanged, so as the discount rate will reduce from 18% to 17% per annum as of January 18th, 2017.
In 2016, the National Bank increased its gold reserves by USD 751 million from USD 4.175 billion to USD 4.927 billion, while paid its due international and domestic debt, which totalled circa USD 3.3 billion in early 2016. Foreign currency inflow was provided by raised utility costs for the population, reduced soft loans and reduced interest rates on all types of deposits. The interest rate on rouble deposits decreased from 23% to 13% per annum and on currency deposits - from 3.7% to 2% per annum. This made households to spend more and earn less to due to lower income from deposits. In January - November 2016, the population sold USD 1.8 billion net, and the National Bank bought a part of this sum from the banks to refinance its debt.
By reducing the interest rate on currency deposits, and retaining the interest rate on rouble deposits, the National Bank aims to solve two tasks. First, amid reduced profitability of currency deposits, some depositors may decide to convert their currency funds to the national currency and place it in the banking system, thereby boosting foreign currency supply on the domestic currency market. Second, by reducing rates on foreign currency deposits by 1 per cent, the National Bank will reduce the annual yield of currency depositors by USD 74.5 million. Due to deficit of reliable borrowers, banks will invest foreign currency deposits of the population in the National Bank bonds. By setting a lower interest rate on its bonds, the National Bank will save money for refinancing its current debt, which relates to the obligations of the state. Throughout 2016, interest rates on the NB bonds dropped from 7% to 5% per annum and due to the NB efforts, may reduce to 4% per annum or lower by late 2017, enabling the NB to save circa USD 25 million.
Overall, by reducing deposit interest rates, the National Bank reduced profitability of deposits and increased its international reserves in 2016. Due to the need to increase the international reserves by USD 0.5 billion in 2017 and to reduce public debt servicing costs, the National Bank is likely to pursue its current policy aiming to reduce currency deposit profitability and interest rates on government bonds may reduce to 4% per annum.
The Belarusian authorities have revived the cyclical political agenda, including preventive crackdown with the use of force during the Freedom Day rally in Minsk and a loyal attitude to the participants in the opposition events in the regions. The protest rally in Minsk has evidenced that the Belarusian society has freed from the post-Maidan syndrome and showed high self-organisation capacity during the event in the absence of opposition leaders. In the future, the authorities are likely to expand the framework for sanctioned and legal activity for the moderate opposition in order to reduce the potential for street protests.
The Freedom Day march in Minsk on March 25th, 2017 was marked by unprecedented and brutal detentions before and during the event.
The Belarusian leadership has managed to stretch in time the political cycle - liberalization followed by repressions - and move beyond the electoral campaigns. Simultaneously, Minsk has demonstrated a rather high mobilisation potential under political slogans, despite the pressure from the state media and security forces before and during Freedom Day, including the presence of armed officers and new special equipment to disperse demonstrations in the streets of Minsk. That said, in other towns (Vitebsk, Gomel, Brest and Grodno) the Freedom Day march led by the opposition, was sanctioned by the local authorities (except Vitebsk), albeit there were fewer participants than in February and March protests against the decree on social dependants.
The Belarusian leadership has depersonalised (removed leaders) the protest, preventively weakened the protest movement, and has not opted for the harsh crackdown like in 2010 with many injured and hundreds arrested. For instance, some party leaders were preventively arrested or detained (Lebedko, Rymashevsky, Gubarevich, Neklyaev, Logvinets, Severinets) before the event. Nikolai Statkevich has disappeared and his whereabouts are currently unknown. Some could not pass through the police cordons (Yanukevich and Kostusev) or participated in the rallies in the regions (Dmitriev, Korotkevich and Milinkevich).
Despite the lack of protest leaders, some demonstrators managed to self-organize and march down the Minsk centre. The march was unauthorised but gathered several thousand participants. Many were detained by the law enforcement and later released without charges. In addition, the Belarusian law enforcers used some tactics of the western riot police against peaceful protesters, allegedly in order to mitigate the criticism from Western capitals.
Nevertheless, the Belarusian authorities have used the entire set of propaganda and power mechanisms applied during the highly politicised 2006 and 2010 elections - criminal prosecution of the opposition leaders, preventive detentions and arrests of activists, harsh propaganda campaign in the state media and, finally, the crackdown on the protest action in Minsk with the use of force.
Overall, the mobilisation potential of the Belarusian society remains high and the authorities are likely to expand the legal framework for public participation in politics in order to absorb superfluous tension.