Suspended oil revenues resulted in problems on the currency market
In September, the National Bank’s gold reserves held out at the target level: over USD 8 billion. However, a significant deterioration in external trade and Belarusians’ expectations that the BYR will devalue will force the National Bank either to abandon the international reserves target level, or the BYR exchange rate for 2012.
On September 5th, the National Bank published a foreign exchange market in January-September 2012 report.
At the end of September 2012 the population, which was a currency net seller for eight months of 2012, became a currency net buyer. On a net basis the population bought USD 365.6 million in September.
On a net basis non-residents bought USD 75.6 million. Until August, legal entities were the major currency sellers. Excess of currency supply over demand enabled the National Bank to fulfill its internal and external obligations without dipping in the gold reserves. Belarus’ external debt due to successful foreign trade in the first half of 2012 has reduced by USD 882.1 million.
In August 2012 the situation changed substantially. Suspension of supplies for solvent’s exports and problems with biodiesel supply significantly curtailed Belarusian exports. Planned engineering works at “Naftan” have reduced volumes of crude oil refining. As a result of these unfavorable factors, August was the first month this year with a negative foreign trade balance.
In September 2012, the situation continued to deteriorate. Biodiesel supply has been suspended almost entirely. Solvents were not exported. Export volumes of lubricants reduced significantly. As a result, Belarus lost revenues from solvents and lubricants exports. This was bound to affect the currency supply at the Belarusian Currency and Stock Exchange, which sank to the February 2012 level.
Concerned about downbeat economic news, the population resorted to the proven scheme: started accumulating currency for the sake of saving. There are no internal available sources to replenish the country’s foreign currency reserves. Therefore the National Bank forces banks to sell foreign currency by increasing contributions to the reserve fund, applicable to raised foreign currency, not leaving anything for market liquidity. In addition, most probably the National Bank borrowed currency from non-residents for a short time in order to hold up the international reserves’ level.
In the meanwhile, improvements in the foreign trade are not feasible. The National Bank will either has to weaken the BYR at a faster pace than in September, which may have an adverse affect on the volume of deposits in foreign currency in the banks, or to resort to gold reserves’ spending due to the unavailability of substantial loans in the near future.
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.