Government to decide: devaluation or financial paralysis

Category status:
April 22, 2016 18:41

On November 22nd, Prime Minister Myasnikovich said that the state housing construction programme was short of BYR 1.8 billion.

A slowdown in lending has affected Belarus’ economy. If restrictions on lending are not lifted in the medium term, economic settlements will be paralyzed. Today the only cheap money source available is printing, but that might result in rapid devaluation.

In October, the economy felt the effects of the credit crunch policy. A positive effect from this decision was the decline in net demand for foreign currency by legal entities in October 2013 - to USD 29.4 million – the lowest in the last three months. However, there were significantly more negative effects. Some companies have used loans to finance current operations and after the credit crunch will be unable to pay wages, which may lead to greater social tensions. Cement plants have reduced production due to the unavailability of bank loans. The construction industry may derail 2013 housing construction plans due to restrictions on concessional lending.

If credit crunch policy is prolonged, payments in the economy will be crippled. Loans were used by counterparties to make payments throughout the cycle. Using loans, customers were paying construction contractors, wages were paid, building materials were bought, electricity, etc. Lack of financial resources leads to arrears and economic slowdown. Ultimately the resources will stop returning to the banking system and entire economy will become paralyzed. Even the slightest panic by depositors may result in some banks having problems with meeting their customer obligations.

Partially, the credit crunch problem is recognized in the government. The latter has elaborated some regulations, envisaging resuming concessional lending in some spheres, such as housing construction. When there is lack of budgetary proceeds, the National Bank has an option to switch on the printing press or the Government might take a decision to privatize state property. Besides sale of MTS shares (Belarus requested USD 800 million), no other major transactions have been projected. Therefore, the only source for concessional lending is money-print. However, it will rapidly increase pressure on the currency, which coupled with the lack of external lending, will accelerate devaluation.

Thus, the government has to choose between attempts to maintain the stability of ruble by slowing down the economy or to lift the credit ban, which will accelerate the onset of devaluation. Since the government has failed to fulfil most 2013 economic development indicators, it has nothing to lose and could be held responsible for the future devaluation.

Similar articles

Number of citizens excluded from social security system would be expanded
October 02, 2017 12:24

The Labour and the Tax Ministries are considering the possibility to include persons engaged in some economic activity without forming a legal entity in the social security system. When the decree No 337 comes into effect, the number of private entrepreneurs is likely to reduce due to the possibility of reducing the tax burden when switching to a tax payment as an individual. 95% of self-employed, including PE, pay insurance premiums on the basis of the minimum wage. The number of self-employed citizens is expected to increase, the number of insurance contributions to the pension system from PE will decrease, the number of citizens who will pay a fee to finance government spending will decrease by several tens. Self-employed citizens have the alternative not to pay social security fees and save resources for future pensions, which, given the gradual restriction by the state of pension requirements could be a more long-sighted option.

Recent trends

cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china cheap nba jerseys from china wholesale nba jerseys from china discount nba jerseys from china