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Financial health of Belarusian enterprises has improved

May 22, 2017 13:59
Image: http://hsleemcpa.com

In Q1 2017, financial health of Belarusian enterprises significantly improved compared with 2016. In previous periods, enterprises suffered losses mainly due to the national currency devaluation. Thanks to the stabilization of the Belarusian rouble, enterprises were able to reduce their loan servicing costs, improve resource management, and finally, step up profits by the year-end.

According to Belstat, in Q1 2017 Belarusian enterprises’ net profits totalled BYN 2.9 billion, while a year ago, they reported BYN 100 million losses. Financial health of enterprises improved amid unprofitable enterprises reducing in number - from 1947 to 1672 over a year; increased sales profitability from 6.5% to 7.2% and loss-making activities reduced in number. As of April 1st, 2017, woodworking enterprises, cement and metallurgical plants continued to operate at a loss, and seasonal loss-making was reported by the air freight.

In previous years, enterprises operated at a loss due to BYN fluctuations and devaluation. Enterprises imported raw materials with a deferred payment in foreign currency. Hence, due to devaluation, their debt to suppliers in the national currency increased. Meanwhile, they could not raise the rouble price on the domestic market for their produces due to price regulation policy of the state, additional taxes and possible decrease in demand from buyers. An additional negative factor was that banks have increased currency loans servicing cost for enterprises. Overdue debt of enterprises to banks on currency loans has exceeded USD 10 billion.

In 2017, the National Bank retained the Belarusian rouble’s value to the currency basket, and did not allow significant exchange rate fluctuations to a particular currency in the basket. This has allowed to solve several problems affecting the financial situation of enterprises. The problem of exchange rate risks: the financial and investment activity has had lesser impact on enterprise’s profits. Amid stable exchange rate, planning for financial flows enables to ensure the timely payment, which helps avoiding penalties for violation of contractual obligations and missing the deadlines for tax payments. Gradual lowering of interest rates leads to a decrease in the loan servicing cost and increases the volume of available funds at an enterprise, and, if necessary, an enterprises could raise additional funds to expand operations. In the given circumstances, profitable enterprises would be able to increase their net profits by the year end; overall situation with settlements in the economy could improve, and unprofitable enterprises would generate fewer losses, leading to a decrease in financial assistance from the state on current operations. Released funds could be used to improve the social guarantees, including wage growth.

Overall, the national currency stabilisation was one of the reasons for the growth in net profits in the Belarusian economy. The absence of exchange rate differences and a decrease in loan payments would enable enterprises to increase their net profits in 2017 and improve the overall situation with settlements in the economy.

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