Critically low level of gold reserves may prompt Belarus to reforms

In 2015, Belarus’ gold reserves dwindled by USD 0.9 billion. The gold reserves have shrunk due to the unfavourable foreign market situation for Belarusian goods and net foreign currency purchases by private and legal persons on the domestic market. In the absence of secured loans, Belarus decided to reform the social sphere in order aspire to an IMF loan, which could lead to further economic reforms in Belarus.

According to the National Bank, on January 1^st, 2016, Belarus’ international reserves totalled USD 4.175 billion, i.e. shrank by USD 883.2 million in 2015. In December 2015 alone, the international reserves decreased by USD 408.1 million. In order to repay its domestic and external commitments, the National Bank in December 2015 raised USD 834.5 million and EUR 25 million on the domestic market from foreign currency bonds. Otherwise, the international reserves could drop below USD 3.5 billion, which could exacerbate the negative trends on the foreign exchange market.

The reserves have languished due to the deteriorating foreign trade situation and changing trends on the domestic foreign exchange market. In January – November 2015, foreign trade deficit totalled USD 2.8 billion (USD 740 million in November alone). In late 2015, exports decreased due to lower sales of potash fertilizers, oil products, and the negative impact on exports of the National Bank’s exchange rate policy. The National Bank strengthened the Belarusian rouble against the Russian rouble and Belarusian goods had lost their competitive advantage on the Russian market. On the domestic foreign exchange market, private and legal persons have become net buyers of the foreign currency. In addition, the National Banks’ initiative on the deposit market has led to a partial withdrawal of foreign currency savings from the Belarusian banking system.

At all rates, the only option for preserving the level of international reserves remain foreign loans. The agreement with the EFSR for a USD 2 billion loan has not yet been reached. The agreement with the IMF has not been concluded due to disagreements over terms of social reforms. In late 2015 – early 2016, the authorities have undertaken some measures aimed at overcoming obstacles in negotiations. For instance, they have increased electricity and gas tariffs by 20%, and plan to recover up to 80 % of housing and communal services costs (now subsidised by 65%) and extend service record requirement from 15 to 20 years for old-age pension by 2026. In addition, there are talks about a national referendum on rising the retirement age. That said, other measures could be adopted in order to meet the IMF requirements as understood by the government. Once the loan agreement is reached, reforms may continue in other economic sectors in order to help Belarus to overcome the cyclical crisis the country has fallen into thanks to the current socio-economic model.

Overall, in 2015 Belarus could not keep gold reserves needed to meet her external and domestic liabilities, intact. In the absence of domestic remedies to stabilise the currency market situation, the government may implement the IMF requirements in order to remove contradictions in negotiations over a new loan, which, in turn, may lead to economic reforms in Belarus.