Lower interest rates in economy could make some Belarusian industries profitable in 2017
Thanks to the stability of the Belarusian rouble and decreased credit burden on enterprises, in January 2017 the Belarusian economy reported some profit. High interest payments on loans often ate up all profits in some industries and the agriculture. Lower interest rates in the economy enabled enterprises to save more than BYN 100 million on interest payments in just one month, which would facilitate cost-effectiveness in some industries.
According to the Belstat, in January 2017, net profit in the Belarusian economy totalled BYN 550 million. During the same period in 2016, the economy reported losses at BYN 1 554 million due to devaluation processes, which led to exchange rate differences. In 2017, the national currency was relatively stable. Meanwhile, every fourth enterprise in Belarus was unprofitable with the total count of 1836 entities. In January 2017, six out of 17 types of industrial production reported losses, including the most losses in oil refining.
Previously, interest rates on loans played an important role in financial performance of enterprises. In 2016, enterprises spent BYN 4 billion to repay interest on loans, which was only 9% less than the total net profit in the economy. In metallurgy, cement production and agriculture, interest payments were higher than the overall profits from product sales, and the total amount spent to repay the principal debt on loans including interest, exceeded half of all their revenues. In this case, apparently banks controlled most financial flows in industry.
Since April 2016, the National Bank has been consistently reducing the discount rate. In nine months, the rate fell from 24% to 15% per annum. The discount rate has a direct impact on the cost of loans for enterprises and their servicing costs. In January 2017, enterprises spent BYN 301 million to service loans, which was 25% less than in January 2016. Given the current situation with excess liquidity and government pressure on the National Bank regarding further rate cuts, interest rates on loans are likely to continue to reduce, leading to an overall decrease in the debt burden on enterprises. Wood processing, some machine-building enterprises and vehicle manufacturers are likely to report some profits. Cement factories and metallurgists are likely to reduce their losses in comparison with the previous year, albeit profits are unlikely in these industries due to high production costs.
Overall, some improvements in financial indicators in the Belarusian economy were partly due to the decrease in the loan servicing costs for enterprises. Amid anticipated further reductions in the interest rates, some industries could report profits in the future and chronically loss-making cement plants could reduce losses and lower appetite for required state aid.
Yet Minsk has not decided on the "patriots' case" and is attempting to break new grounds in relations with the West. Meanwhile, Brussels is ready to lower cooperation levels with the Belarusian authorities in anticipation of new political prisoners to appear after the trial against former White Legion activists, irrelevant of the charges, either preparation for riots, or creation of illegal armed groups, or any other. Minsk is unlikely to cross the red line in bilateral relations with the West and new political prisoners are unlikely to appear in Belarus.
The harsh clampdown on protests and arrests this spring in Belarus are unlikely to lead to new moves by the European Union, however, the EU would closely monitor ‘some investigations’, including the ‘patriot’s case’ aka the ‘White Legion’ case.
According to human rights defenders, 17 people remain in custody, of which 16 are former members of the White Legion and one supporter of Statkevich-led the Belarusian National Committee, Sergei Kuntsevich. The law enforcement has been releasing former activists of the White Legion and members of the Patriot Club, most likely in order to mitigate criticism from Western capitals. Amid Minsk Dialogue expert conference with the participation of Belarusian and EU officials, the authorities released from custody head of the Bobruisk "Patriot" Club Nikolai Mikhalkov. In addition, the Belarusian leadership expects to ease some tension by demonstrating greater openness to a dialogue with civil society on human rights issues. For instance, for the first time the Belarusian authorities and human rights defenders held consultations on Belarus’ fifth periodic report to the UN Human Rights Committee.
The Belarusian leadership has attempted to mitigate the West’s attitude towards the criminal prosecution against former activists of the "White Legion" by adding charges of creating an ‘illegal armed formation’ to ‘preparing for mass riots’ charges.
Apparently, Minsk also gains from speculations about possible disagreements among the executives - supporters of stronger ties with Russia, and "pro-Western" reformists lead by Foreign Minister Makei. That said, the Presidential Administration and President Lukashenka have full control over the foreign policy agenda and the law enforcement.
Overall, Minsk is determined to develop relations with Western capitals. The Belarusian authorities are likely to take controversial actions, i.e. to demonstrate the desire for liberalization in some areas and occasionally tighten repressions against the opponents, however without creating new political prisoners.