Economy: The lingering recession

January 03, 2017 11:56

Amid fewer benefits from economic cooperation with Russia, the main trend in 2016 was a large-scale revision of the financial support to different economic sectors due to insufficient budget revenues.

Due to the decline in social transfers (the share of state subsidies for housing and utility services reduced from 51.5% to 40% by late 2016), reduced soft loans for housing construction and slow wage growth, the population in 2016 started spending their currency savings.

The population became a major currency donor by selling USD 1.8 billion on a net basis.

Thanks to this, two tranches from the EEU and sales of currency bonds, the National Bank and the Finance Ministry made due internal and public debt payments in full.

By reducing administrative lending, Belarus stabilised the national currency, however, in the absence of cheap corporate loans, the volume of overdue debs on corporate loans increased dramatically - the share of problem assets in banks’ balance sheets increased from 6.8% to 14.9%, creating the preconditions for a crisis in the banking system. In order to address the problem with debts in agriculture, the government established the Asset Management Agency, aimed to clear the banks' balance sheets from bad loans of agricultural organisations. Consistently insolvent enterprises will be closed through the court.

Amid deteriorating price situation on foreign markets for Belarusian goods, the oil and gas dispute between Belarus and Russia had an additional negative impact on the economy. Russia unilaterally cut the monthly supply of oil from 2 million tons to 1.03 million tons, which resulted in reduced oil processing, industrial slowdown and decreased wholesale trade by 10%.

The economic result of the year was the abandonment of quantitative performance indicators, the decision on the financial restructuring of agriculture, and the shift of financial consequences of the economic crisis onto the population by reducing social payments and benefits.

In 2017, the government’s main task would be to hold a financial audit at public enterprises with subsequent layoffs, to adopt measures preventing the banking crisis and to search for new and additional sources of financing to service the public debt. Amid further cuts in financial aid from Russia, some social and economic reforms could be held in Belarus.

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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.