National Bank’s gradual devaluation strategy challenged

April 22, 2016 18:38

On September 26th, 2013, an auction for government foreign currency bonds was declared invalid.

Paying off and servicing public debt in October might be a challenge for the National Bank. In addition, the National Bank needs resources to stop the population from withdrawing Belarusian rubles from bank deposits, which happens due to the weakening of the national currency. The only solution is to raise bank deposit interest rates. Since the National Bank will not have any additional currency revenues, it will have to sacrifice some gold reserves.

In October, public debt repayments will be the highest. Belarus needs circa USD 430-440 million to pay back to the IMF and other creditors. The situation is particularly challenging as the Mozyr Refinery is closed for major overhaul which may last until late October. As a result, petroleum products sales in foreign markets will fall. In addition, Belaruskali has had to (de facto) stop the export of fertilizers. These factors combined will result in the slowdown on the Belarusian Currency and Stock Exchange, and the National Bank will have to make more efforts to smooth out peaks in demand for foreign currency, which will continue growing in all economic sectors. Moreover, September 2013 data on gold reserves level will surely demonstrate a decline.

The situation on the deposit market raises the most concerns. In September, the weakening of the national currency against a basket of currencies will be about 2.5 %. Devaluation expectations of the population increased dramatically in September. Citizens leave their savings in banks if interest rates are circa 45%-50% per annum and deposits are made for 1-2 months. It is possible that soon the interest rates will start playing against the inflow of deposits, since clients will start questioning banks’ reliability, as they offer high interest rates against the background of an overall drastic state of the economy. Alternatively, if interest rates drop, the population’s demand for foreign currency will only increase. On September 1st, the volume of ruble deposits was about BYR 3.75 billion and in July their volume dropped by 9%.

The National Bank had planned to use external and internal borrowings to partially replenish the dwindling international reserves. Domestic borrowing failed partially – the National Bank managed to sell only USD 22.51 million worth of state foreign currency bonds in the country. The situation with external borrowing is challenging too – negotiations about the last EurAsEC ACF tranche might be procrastinated, leaving no hopes for its allocation in October.

The National Bank has ‘impossible’ tasks: to fulfill its domestic and international commitments and to maintain the gold reserves’ current level without restricting access to foreign currency (because that would result in inevitable panic and a one-time devaluation of the national currency). The gradual devaluation strategy is probably a certain way out of the situation, but it requires more foreign currency than the National Bank has. 

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The Belarusian authorities have launched a discussion on the moratorium or abolition of the death penalty under the pressure of Belarusian human rights activists and international community. Apparently, the authorities are interested in monitoring public sentiments and response to the possible abolition of the capital punishment. The introduction of a moratorium on the death penalty would depend on the dynamics in Belarusian-European relations, efforts of the civil society organisations and Western capitals.

In Grodno last week, the possibility of abolishing the death penalty in Belarus or introducing a moratorium was discussed.

The Belarusian authorities are likely to continue to support the death penalty in Belarus. During his rule, President Lukashenka pardoned only one person, and courts sentenced to death more than 400 people since the early 1990s. Over the past year, Belarusian courts sentenced to death several persons and one person was executed.

There are no recent independent polls about people’s attitude about the death penalty in Belarus. Apparently, this issue is not a priority for the population. In many ways, public opinion about the abolition of the death penalty would depend on the tone of the state-owned media reports.

That said, the Belarusian Orthodox Church and the Roman-Catholic Church stand for the abolition of the capital punishment, however their efforts in this regard only limit to public statements about their stance. Simultaneously, the authorities could have influenced public opinion about the death penalty through a focused media campaign in the state media. As they did, for example, with the nuclear power plant construction in Astravets. Initially unpopular project of the NPP construction was broadly promoted in the state media, and eventually, according to independent pollsters, was accepted by most population.