Minsk anticipates receiving IMF loan by curtailing social protection policy

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April 22, 2016 19:38

The Belarusian authorities see no benefits from reforming the existing socio-economic model, while they see the costs and possible negative political effects from such a reform. In order to receive the IMF loan, the leadership will only cut social guarantees to the population and will preserve the existing social and economic model in somewhat abbreviated format. In the mid-term (5 years), the Belarusian authorities are planning to revise the social contract with the population and adopt unpopular measures anyway, regardless of the external financing. 

Last week, Belarusian Prime Minister Andrei Kobyakov said at the meeting with the President, that during negotiation with the IMF’s Extended Fund Facility Programme, Belarus had asked for a three billion loan for 10 years at 2.28% per annum. 

Belarus’ senior leadership is still unclear about the country’s socio-economic development in the coming years. The Belarusian authorities are waiting for external negative factors to disappear in order to recover economic growth. Apparently, the lack of clear political will at the highest level with regard to economic reforms has led the IMF to suspend the decision about a new loan for Belarus. 

The composition of the government and the Prime Minister figure have not been decided to date, which is probably linked to the protracted negotiations with the IMF about the new loan programme for Belarus. The new government’s composition is likely to be approved depending on the outcomes of the talks with the IMF. 

The economic authorities in the face of supporters of reforms in the government and the National Bank have attempted to convince the IMF that the senior management is ready for economic policy reforms. However, the vision, focus and depth of economic reforms as seen by the president, the economic authorities and the IMF are likely to be very different. For instance, President Lukashenka wants to preserve the existing social and economic model, albeit somewhat ‘optimised’: "We will only carry out such as-you-call them reforms (these are not even reforms, it is the normal functioning of the state), well, we will only improve what we have”. 

The state has no resources to keep social protection at the current level. The First Deputy Chairman of the National Bank Nadolny has announced plans to revise the social contract with the population, regardless of obtaining external financing, “We are going to implement what the Fund has requested anyway, because it is now a necessity”. 

For example, in addition to a traditional seasonal increase in utility tariffs, as of December 2015, gas, electricity, heating and hot water tariffs have been increased too, regardless of being a ‘socially sensitive’ matter. Meanwhile, the president has reassured the Belarusian society and promised a moderate reduction of social protection, depending on the growth of well-being: "Only when we are confident that as a result of, for example, the increase in housing and utility service tariffs, people will be able to pay the bills". That said, in recent months, wages of Belarusian have only reduced in US Dollar and BYR terms. 

In addition, the authorities are attempting to sell to the population the idea, that curtailing social protection within the existing socio-economic model makes the essence of the social reform. For example, the authorities are planning to solve the emerging problems in the pension system by raising the retirement age, without revising the retirement model per se. 

The authorities demonstrate greater openness to society and expect to reduce the negative impact of unpopular decisions on their ratings by shifting the decision-making responsibility onto the population. For instance, President Lukashenka said, he needed to ‘consult with the people’ and simultaneously made it clear there were no alternative public policies in the social sphere: "I am absolutely convinced, we need to raise the retirement age”

Regardless of the IMF pressure, the Belarusian authorities are unlikely to carry out economic reforms; they will attempt to preserve the existing socio-economic model, albeit with reduced social guarantees to the population.

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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.

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