Ukraine’s currency devaluation creates new challenges for Belarus’ foreign trade
Ukraine is the second largest market for Belarusian products after Russia. Economic instability in Ukraine and substantial public debt has resulted in a sharp weakening of Ukraine’s currency (hryvnia). The hryvnia’s devaluation will result in falling export proceeds for some Belarusian goods and will create favourable conditions for growing imports from Ukraine.
Ukraine’s hryvnia to the U.S. Dollar exchange rate reached UAH 10.5 per USD 1.
In 2013, Belarus’ exports to Ukraine totalled USD 4.2 billion. The Ukrainian market is the second largest for Belarus after the Russian one. Belarus’ main exports include petroleum products (68% of the total exports to Ukraine), potash and mixed fertilizers, tyres, refrigerators, trucks and tractors.
After the leadership change, Ukraine has reported a significant lack of funds in the budget. Enterprises were forced to reserve funds for 6 days if they were buying foreign currency at the currency exchange to settle foreign trade contracts. UAH/USD exchange rate on the interbank market sometimes exceeded UAH 11 per USD 1 and foreign exchange market reported multiple hryvnia exchange rates. Dividends from foreign currency deposits have been frozen. Until Ukraine receives foreign aid from the IMF or other international donors, the hryvnia might continue to sink.
Problems with converting the hryvnia on the interbank market have led to reduced export of Belarus’ petroleum products to Ukraine and an oversupply of fuel on the Belarusian market. Fuel surplus stock is sold to Russia and the EU. Belarus has used Ukrainian ports to transit her petrochemical goods to Mediterranean countries, however currently such exports carry risks of cargo safety. In addition, exporters of petroleum products may face delays in payments by buyers. The uncertainty with the hryvnia exchange rate will also result in reduced exports of other Belarusian goods. Foodstuff industry might suffer huge losses, because it will lose its competitiveness on the Ukrainian market, while food imports from Ukraine might increase considerably, namely, sunflower oil, waste vegetable oils, and confectionery.
Belarus’ estimated losses in exports may reach 10-15% of total sales in 2014, while imports from Ukraine may increase by 5-10% if Customs Union does not introduce new restrictions.
Belarus will lose a share in the Ukrainian market because of the devalued hryvnia. Only by shifting exports to other countries will she be able to compensate for the losses. Meanwhile, only petroleum products exports allow for minimal financial losses. Exports of other goods will either reduce or incur substantial financial losses due to lower prices.
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.