News Ticker

Belarus expects a loan from IMF

Country needs money as Russia is still refusing to help its western neighbour. But what the IMF demands from Belarus? And will it really help to restore economic growth?

At the meeting with the president Alexander Lukashenko  the first Deputy Prime Minister Vasily Matyushevsky once again gave hope that the issue of the IMF granting a loan to Belarus will be resolved in the near future. “We expect soon to enter the program with the fund – in January – early February”, – stated Vasily Matyushevsky.

A lot of decisions have been made both before and after that statement. Obviously, they were aimed at entering the IMF program.

The established practice of providing loans by the IMF requires for the authorities to take some certain actions even before the decision on granting a loan is made. Apparently, the IMF mission which left in the autumn of 2015 in order to “consider” the issue one more time has made some suggestions concerning those preventing actions.

Having summarized the experience of receiving the previous credit as well as last year’s reports by the IMF monitoring missions and the recommendations that the fund has continually been giving to our country over the last 6-7 years, we’ll try to highlight the main matters that the IMF might pay special attention to when providing Belarus the loan.

 

Exchange Rate Formation

Everyone remembers one of the IMF’s controversial requests while granting a loan in 2009 – a one-time 20% devaluation of the Belarusian ruble in order to reduce the deficit hole in the current account a little bit since the credit was to “patch” that hole. Today the current account deficit is small, but there is another problem to be covered with external financing – payments on public debt. The low level of gold and foreign exchange reserves creates a risk of their total loss if the government will simultaneously maintain the exchange rate and pay foreign debts. In this regard, the IMF has repeatedly urged the National Bank to move to the floating exchange rate in the recent years, each time pointing out that we need to be “even more flexible”  in that regard.

It is worth noting that since last week the National Bank has demonstrated very impressive “flexibility” in exchange rate formation allowing significant fluctuations following the depreciation and then – the appreciation of the ruble. Some turmoil was made by the headlines stating that the central bank has returned to administrative regulation of the exchange rate by informing banks of the need to respect the deviation corridor of ±2% for rates in exchange offices. However this decision complies with the IMF requirements since the fund may perceive large deviations as a multiplicity of exchange rates. So far we can assume that the National Bank is doing everything right according to the IMF if the situation on the markets allows, thereby avoiding an even greater collapse.

 

Price Control

There is one IMF requirement transferring from one report to the other over the years: to abolish price control. The Council of Ministers has recently adopted a truly historic decision by abolishing the list of socially important goods. An interesting detail is that the decree was signed on January 11, the day when the First Deputy Prime Minister had an appointment with Lukashenko. Was he asking permission to sign the decree or was he already reporting about it? Anyway, the government has definitely received a plus on this item.

 

Tariffs for Households

The subsidizing of tariffs on utility services and public transport has been one of the most controversial issues in negotiations with the IMF and other creditors over the years. It seems that this time the fund has decided to impose tougher conditions and bring the level of cost recovery by households to 100% over a year and a half, while the Belarusian government intended to do that over a five year period. It is difficult to say for sure whether they managed to agree on a compromise and bargain at least a year but December and January were marked by a number of solutions in this area. At first, VAT exemption for electricity and gas tariffs for households was revoked, which caused an increase in tariffs by 20%. On December 31 decree №535 was signed “On Providing Housing and Communal Services” that will cause the reimbursement of maintenance costs of housing in Belarus to rise by up to 80% without the growth of service costs.

In fact, it means that the interior house cleaning and electric lighting will be withdrawn from maintenance fees; payments for elevators will also be divided. Households are going to foot the new bills separately and in full but precise figures are still unclear. These conclusions can be drawn after examining infographics on the site of the Ministry of Housing and Communal Services called Utilities Literacy Portal. Obviously, people should become fully communally literate only after receiving new bills for utility services for January.

Moreover, then we will see how the latest increases will have affected each apartment: the tariffs for heating and hot water supply rose by 33% from January 1.

Concerning public transport, the matter of city transport was settled in December, while railway transport continues to rise in price with each passing day.

It looks like we’ve pleased the IMF in this regard.

 

Wages

Restricting wage growth, particularly for state employees, has always been and still remains an immutable IMF requirement for maintaining financial stability. Well, this recommendation has been adhered to so far due to the protracted economic downturn. According to the National Statistical Committee the wage in December was Br 7’424’092. For the first time the committee has confined its summary to comparison with November 2015, noting only that the average wage increased by 10% over a month.

Meanwhile the nominal wage rose by 9% compared to December 2014, but taking into consideration inflation of 12% over the last year the real wage fell by 3%. Despite the increase of the minimum wage from January 1, which in fact was just an indexation, wages can be expected to decline in January compared to December, firstly, due to long holidays, secondly, due to absence of end-of-the-year bonuses.

Hence, the IMF conditions are satisfied in this regard as well.

 

Indicators

In our country indicators of economic development – another ancient matter of dispute between the IMF and the government – are generally imposed on economic performance without any peg to reality.

It is worth noting that we have made some progress on that score as well. They no longer use such terms as “indicators” or “parameters” in forecasting. In December 2015 Alexander Lukashenko signed a decree on “objectives” of socioeconomic development. While never assigning tasks to the economy in general, ministries, departments or enterprises, he did it only to the government and the National Bank who in turn should pass these objectives and instructions down to management, including the management of state enterprises. The economic forecast is modest and conditionally positive. An entailing-no-deficit budget was adopted, as the IMF requires, but even a surplus budget in order to collect money for the repayment of the external debt as a precautionary measure. Having rejected the VAT increase a year ago, which has always been favored by the IMF, they intensified the control of its payment and taxation of individuals.

Consiquently this IMF requirement has been met, although not easily.

 

“Road map” 2016

The Council of Ministers and the National Bank has already published a series of measures for solving both the socioeconomic problems and providing macroeconomic balance in Belarus 2016, i.e. a “road map”.

The information that the IMF may be interested in concerns the continuation of negotiations on joining the WTO as well as restriction of state support. Thus, they plan to establish quarterly limit values for the asset portfolio of the Development Bank of the Republic of Belarus (which was clearly inscribed under the IMF pressure) and to optimize soft lending of government programs and activities in 2016, including establishing a limit of 4.75 billion rubles for the first quarter of 2016. It isn’t the first year that such restriction have been imposed, but this time the limit was set only for the first quarter – obviously, it has been approved by the fund.

Moreover, probably according to the IMF suggestion there will be developed a law “On Investment Funds” in the first half of the year and carried out financial rehabilitation and reforming of sustainably insolvent agricultural organizations. Inter alia, it involves the creation of the JSC “Asset Management Agency” and transmission of banks’ assets generated by lending of sustainably insolvent agricultural organizations to this agency.
Establishment of the agency is without any doubt a recommendation or maybe even a stringent requirement of the IMF, especially considering the fact that the term of preparation of an appropriate draft decree is scheduled prior to February 1, 2016. Apparently, the text has already been approved by the fund. Let us see whether it will be ready in time.

Although the plan contains very few real activities and a lot of things that reveal the desire to preserve manual economic management, in case of performing all the tasks mentioned and quick adoption of relevant resolutions and decrees this item may still be withdrawn from the to-do list.

 

Privatization

There were times when privatization had been highly important and a burning issue in negotiations with the IMF. But according to A. Lukashenko this time the fund does not even require privatization. And then, as the saying goes, there was a blessing in disguise, particularly meant conjuncture, both economic and geopolitical. The cost of the majority of Belarusian companies has fallen sharply due to the lack of demand for their products, primarily in Russia. Russia itself is suffering financial difficulties; therefore, they won’t acquire expensive products, but will exert so much pressure, constricting the market for Belarusian goods even further, that we will have to give them away for free. There is hardly any other investor on the horizon once again because of the shrinking Russian market and the sanctions. Hence, so far it is possible to sell something small, any kind of business for a small sum of money in case someone will buy it.

This has all been written in the plan of the government and the National Bank. Furthermore, they plan to adopt a concept of state property management for the period up to 2020 and implement it in accordance with the fixed schedule as well as to prepare a comprehensive strategy of reforming and restructuring state-owned enterprises. Certainly, these are just concepts and plans, but one can agree with it on the initial stage, which is just what the IMF has been doing on many occassions.

Besides, something should be left for further negotiations when intermediate decisions on disbursement of tranches will be made; we may even need to ask for an increase of the loan amount.

 

Retirement Age

Apparently, the issue of raising the retirement age is left for future discussions. In December it seemed that the process was just about to be started. Something must be done about it urgently since the Social Protection Fund budget is presently in deficit and everything for advising with the population is ready.

But in January the situation was rolled backwards. Officials said the following, though unconfidently: the decision on raising the retirement age will not be adopted in 2016. There has been no large-scale survey as well. The only things at disposal are information leakages from sociologists: it appears that people do not mind, but at the same time they want the shift to be gradual. That is adding year by year, for example.

It turned out that everything should be calculated carefully. Since the average pension is yet less than the average wage, maybe, when labour productivity declines additional number of employees should be kept on their workplaces in order to pay them wages, or is it economically inexpedient?

And then there appeared the idea of reducing the period of maternity leave for a year. The whole matter ought to be resolved in a very sophisticated way. Having simultaneously thrown both young mothers and potential grandmothers into the labour market, one may not just increase unemployment but also unduly strain the system of preschool education. Probably, they have decided to wait and see whether there will be any signs of the recession ending in 2016 and only then reflect on the retirement.

However, the decision on pensions has been made, namely a gradual raise in time of work experience for retirement. Thence, for some people the retirement age might rise naturally.

 

So, When?!

In general, the government and the National Bank have done enough to substantiate their readiness to fulfill the IMF requirements.

Though the International Monetary Fund is a bit busy right now. The IMF is occupied presently with the procedure of re-electing the IMF Managing Director which does not play into our hands. After all, it is Christine Lagarde that Lukashenko has made agreements with. However, she will still be on the position till summer, besides she is prophesied to be elected for a second term. But will the IMF deal with Belarus be completed during the reelection of their “president”? The question is supposed to be settled before March 3.

In fact, the IMF has got one more reason to postpone the problem of providing Belarus a loan until the beginning of March. In February the fund will determine whether the freezing of sanctions for Belarus will be prolonged or perhaps they will be lifted completely. Let us remember that the sanctions were frozen for four months after the presidential elections, i.e. until February 29.

On the other hand, Belarus has a cause to hurry the IMF – Russia has helped by declaring that it does not have money for new intergovernmental loans. Thus we can hint to the IMF fund that Belarus does indeed need the money urgently.

In fact, we do need them very urgently. With gold and foreign exchange reserves of slightly over 4 billion dollars as well as a prospect of further Russian ruble depreciation we will not sustain the Belarusian economy in this way for a long period of time.

Leave a comment

Your email address will not be published.


*