21 November 2019, Thursday, 7:29
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Leanid Zlotnikau: Default In Belarus Is Possible

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Leanid Zlotnikau: Default In Belarus Is Possible
LEANID ZLOTNIKAU

It is important to stop inefficient management.

The International Monetary Fund (IMF) sharply worsened the forecast for the economic growth in Belarus in 2020. It fell to 0.3% from 2.2%, which actually means stagnation.

The Fund’s specialists also emphasized that the economic growth rate in Belarus could be significantly lower if Russia does not compensate for the losses after the implementation of the tax maneuver. The IMF experts reckon the lack of such compensation as the main risk for the Belarusian economy at present.

How will this affect the citizens of Belarus? Economist Leanid Zlotnikau answers the questions of the Charter97.org.

- How would you comment on the GDP dynamics decline to zero?

- The indicators are close to zero, so to speak “within the average noise level”. I’d like to note that, in Belarus, the GDP is not exactly the GDP. There are many prices that are regulated, and the GDP can be calculated under the market prices. Returning to the forecast, these are low growth rates. It doesn’t matter whether it’s 1%, or 0.5% - this is almost nothing anyway. In short, this is very bad for our economy.

On the other hand, it seems to me that the situation is much worse than the IMF says. As far as I know, representatives of the World Bank predicted a possible economic recession in Belarus next year. It appears more real.

- Recently, a spokesman for the Russian Prime Minister, speaking about the losses of Belarus due to the tax maneuver, stated that “it is impossible to lose what does not belong to you”. How will it aggravate the economic situation, if the Russian Federation refuses to compensate?

- Indeed, we demand that Russia, at its own expense, by lowering the living standards of its population, should feed Belarus. The oil that belongs to Russia can be sold on the world market at higher prices than it is supplied to Belarus. That is, Russia takes money from its budget and gives it to Belarus.

The Spokesperson's statement is correct. If we want to live well, we must work on our own: create an effective economy, another system, etc. And instead of demanding something, it is necessary to stop the inefficient management of this power along with the power itself. This demand is more important than some claims to Russia to feed us.

The tax maneuver has just begun, it’s the second or third year. By 2025, we must reach zero support from the Russian budget. It did not receive its export duties - it gave them to Belarus. Now Russia is gradually reducing these handouts.

If we count until 2025, then in terms of one year - this is about 2-2.5 billion dollars of annual losses. Now they are much smaller - about 400 million dollars this year.

Then goes the loss from revenue, because Belarus earned on cheap oil and gas. Today, we are only talking about a tax maneuver for the established oil duties. Gas prices are still lower than in Poland or other countries.

So Belarus has some additional income from gas. True, Belarusian enterprises receive gas at prices even higher than the world prices, but at the entrance to the country this gas becomes cheaper. There is another issue here - this is assistance not to enterprises, but to this government and this power.

- Against the background of the figures voiced by the IMF, Lukashenka’s dissatisfaction with the government’s plans for GDP growth of only 2.5%, and the order to artificially warm up the economy to a higher level looks rather strange. How can this end?

- It will end as it always ended - by non-fulfillment of indicators. Lukashenka always demands more than our economy can give, and always gets less as a result.

This has been happening in the recent years. Of course, not always - let’s say, we had high growth rates in the mid-2000s. Then there was a GDP growth of 7-9% per year. And now we are fighting for 0.7%, that is, slowly sliding down.

I think that the situation will be worse than even 0.5%. It is likely that next year Belarus will be in a very difficult situation, I think, even by the end of this year. And here it’s not time for economic growth - if only the drop was less than it can be. The government will fight for a lesser depth of decline.

- Given the fact that non-repayable loans of the Belarusian enterprises, and the amount of the general public debt of Belarus are growing rapidly, can the current situation lead to default?

- Yes maybe. I would not say that the external debts of the government are growing rapidly - both two years ago, and now they amount to about 41 billion dollars. At the same time, the government is investing debt, it is growing, but the opportunities to give it back are not growing. More than half of what we have to return next year, we will repay due to new debts.

The situation is worse in the economy itself. It turns out that even those traditional industries that we have - engineering, light industry, woodworking, even petrochemicals - give less profit than they used to. Now in our country they are either not effective or with very low efficiency (57%). Among these enterprises, 26% are unprofitable, up to 5% bring low profit. Under inflation, they are all almost at zero.

But the most important thing is not even this, but the fact that the financial situation in Belarus is worsening. In the first half of 2019, the Belarusian enterprises spent 27% of their revenues to make pending payments, which they had to repay - to return loans to a bank, to external suppliers! And their average profit was 7-8%.

This means that in order to repay their debts, more than half of Belarusian enterprises pay salaries to people through loans and lose working capital. It turns out that every year they live more and more in debt.

As a result, our enterprises will be forced to slow down - after all, no one will give loans to them anymore, because accounts payable are growing this year. The enterprises are already giving away a large percentage of their profits, and next year they will give even more!

- How will this affect the standard of living of the Belarusian citizens?

- A fall in the economy is primarily a fall in income, so real wages may decrease. Not to mention that the money supply will increase and there will definitely be great inflation.

But this does not mean that everyone will have a fall in salaries. There is a small part of the population - 10-15%, whose incomes can even increase, and the other part will become poorer. The rich will become richer and the poor poorer.