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.
President Lukashenka has met with the head of Chechnya Ramzan Kadyrov, who visited Minsk and the Minsk Automobile Plant. Minsk has always sought to have independent links with Russian regional elites, partially, to compensate for the Kremlin's diminishing interest in Belarus. In recent years, Belarus’ contacts with the Russian regions have been extremely intense. However, with some leaders of Russian regions, primarily heads of large republics, communication was more difficult to build. As many analysts in Minsk suggested, Minsk could regard contacts between President Lukashenka and the head of Chechnya as an additional communication channel for relieving tension in relations with the Kremlin. However, most likely, a trusting relationship with Kadyrov is a value for Minsk as such, provided Kadyrov’s broad business and political interests, and a high degree of autonomy for the Chechen leader from the Kremlin.