Belarus: a turning point in August – a record drop of the gold and forex reserves and an increase in the cost of ruble resources

In 2020, the Belarusian economy experienced several disturbances: a decrease in the Russian crude supplies, the pandemic consequences, and two foreign exchange crises in March and August. As a result, the GDP of Belarus in January-July 2020 amounted to BYN 80.0 billion, or 98.4% in comparable prices compared with the same period in 2019.

In addition to the reduction in the Russian crude supplies, the main factors that influenced the Belarusian economy over January-July 2020 were:

  • decline in the world crude prices;
  • lowered prices for potash fertilizers under new contracts with China and India;
  • reduction in the volume of aid from Russia;
  • the industrial production slump;
  • growth of inventories;
  • cargo turnover reduction;
  • the republican budget deficit due to decreased revenues and increased expenditures;
  • widening of the gap between the rates on new ruble loans and the refinancing rate;
  • difficulties associated with attracting new borrowings and foreign currency loans;
  • growth of business entities’ borrowings in rubles amid uncertainty with the Belarusian ruble exchange rate;
  • foreign exchange crises in March and August, and the resulting outflow of the population’s deposits in foreign currency and rubles.

The refusal from lockdown measures allowed to contain the industrial production decrease in January-July to 97.5% compared with the same period last year. At the same time, the industry began to show growth from June only, after the start of economic recovery of the main trading partners. Be it noted that the industrial production decrease led to reduced turnover in the transportation sector to 92.7% and wholesale trade to 92.3%.

Relatively lower GDP decline rates in Belarus – compared to its neighbors – were ensured through encouraging the domestic market, primarily construction and agriculture.Besides, a positive contribution to the GDP altering was made by the information and communication sector, which, together with construction, remains the driver of the country's economy growth.

It should be noted that the service sector, primarily the IT field, made the foreign trade balance over January-July net positive, which amounted to USD 0.8 billion.

A decrease in the industrial production and foreign trade turnover in the petrochemical sector led to the fall of budget revenues, while the public debt payments and interbudgetary transfers increased the expenditures. As a result, the republican budget deficit totaled BYN 1.4 billion over January-July 2020.

The Belarusian ruble weakening also had a negative impact on the inflation, which amounted to 3.6% over January-July this year, having exceeded the previous years’ figures. It stands to mention that the consumer price index growth in July was provided by the goods and services, whose prices are regulated by the state (primarily the service sector), while the dollar exchange rate rise will have the main influence after August.

The foreign exchange crisis in August has already had a significant impact on the Belarusian economy. Business entities increased their debts to the banks in rubles and reduced them in foreign currency in 1H2020 due to the BYN exchange rate uncertainty, but in August, the banks' lending to the economy virtually stopped against the background of the liquidity issues. And this is the case of both legal entities and individuals. We note that this affected not only consumer credits, but housing ones as well.

Due to the high demand for foreign currency, the US exchange rate rose by almost 10% in August. As a result, the ruble liquidity squeezed, while the value of ruble deposits exceeded 20%. To maintain the exchange rate in August, the National Bank spent almost USD 1.3 billion, that is, all the resources that it had managed to attract in June with the help of Eurobonds. This is even though the population did not begin to withdraw foreign currency from their deposits, the volume of which is about USD 5 billion.

The tough measures taken to support the national currency temporarily stabilized the exchange rate. But the true worth of that became reduced economy’s lending. At the same time, the banking system’s liquidity shortage and the demand for withdrawing foreign currency deposits indicate that the problem remains.

Macroeconomic fundamentals

Name

June 2020

July 2020

January – June 2020

January – July 2020

1. Gross domestic product year on year, %

98.8

99.0

98.3

98.4

2. Industrial production, BYN million (current prices)

9,041.3

9,646.7

52,948.0

6,2642.9

3. Industrial production index year on year, %

100.9

101.1

96.9

97.5

4. Retail trade turnover, BYN million (current prices)

4,382.5

4,679.9

25,114.8

29,794.7

5. Retail turnover index year on year, %

100.8

104.5

102.6

102.9

6. Fixed capital expenditures, BYN million (current prices)

2,501.3

2,479.5

12,763.5

15,242.9

7. Fixed capex index year on year, %

87.5

105.7

98.8

99.7

8. Consumer price index, % of the previous month

100.2

100.2

9. Consumer price index vs December of the previous year on an accrual basis, %

103.4

103.6

10. Industrial PPI, % of the previous month

100.2

100.3

11. Industrial PP vs December of the previous year on an accrual basis, %

103.9

104.1

12. Balance of foreign trade in goods

(revised data)

(preliminary data)

Export of goods, USD million

2,371.1

2,516.5

12,831.9

15,348.4

Import of goods, USD million

2,602.5

2,851.7

14,700.5

17,552.2

Balance,USD million

-231.4

-335.2

-1,496.0

-2,203.8

A detailed analysis of the economic situation over July-August 2020 and a short-term forecast can be found in the Review ‘Economy of Belarus over July-August 2020’ prepared by the InComeIn Research Company.



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