Collapse Of Belarusian Ruble Is Coming

Russia does not give money.

This year, the events in the foreign exchange market of the country are developing according to the scenario of last year, which causes some concerns, since then the dollar exchange rate declined until mid-summer, after which it quickly grew by about 10%. Will it happen now?

So far, in Belarus itself, nothing foreshadows such a development, and the situation in some segments of the currency market of the Republic of Belarus has even improved.

Businesses and people sell currency

True, individuals this May sold currencies for 131.8 million dollars more than they bought, which is significantly lower than in May 2018, when they sold 207.3 million dollars in pure form. In general, in January-May of the current year, the population of the Republic of Belarus sold foreign currency to the banks in net terms for $ 271.9 million. For five months of last year - 657.8 million dollars.

In January-May of this year, business entities - residents of the Republic of Belarus sold currencies for 79.9 million dollars more than they bought, that is, they, like individuals, are net sellers of currency. And in the five months of last year, they bought more currency than they sold, by 425.8 million dollars.

Business entities, the non-residents of the Republic of Belarus, in the first five months of the current year,sold currencies of $ 275.4 million against $ 191.8 million a year ago, to the banks.

Thus, the population this year began to sell less currency, but enterprises have compensated for this reduction.

Foreign trade in goods goes into minus

At the same time, the state of Belarus’s foreign trade has somewhat deteriorated. The balance of foreign trade of Belarus in goods and services for January-April of the current year amounted, according to the National Bank, to $ 52.4 million, which is significantly lower than in the same period last year, when it was equal to $ 304.6 million.

Compared to the same period last year, the balance of foreign trade in services grew by 11% and reached $ 1.246 billion, while the negative balance of foreign trade in goods increased by almost 50% in absolute value and amounted to $ 1.193 billion.

A sharp deterioration in foreign trade in goods was observed in April, when exports amounted to 2.625 billion dollars, which was significantly less than a year ago. This was caused, in particular, by a decrease in revenues from the export of petroleum products due to a reduction in their production at the Belarusian refineries due to the supply of low-quality oil from Russia.

At the same time, imports of goods in Belarus in April (in FOB prices) amounted to 3,318 billion dollars, which significantly exceeded imports in April 2018, equal to 2,999 billion dollars.

Individuals love currency deposits

The reduction in the volume of sales of currency by individuals in the current year is accompanied by an increase in the value of their savings in banks. Since the beginning of the year, foreign currency deposits of the population increased by 179.6 million dollars and reached 7.31 billion dollars as of June 1. In particular, fixed-term currency deposits of the population in May 2019 increased by 11 million dollars compared with April, although in May last year they decreased by 97.1 million dollars. That is, a rather radical change in the attitude of people to foreign currency deposits occurred over the year. Perhaps this is due to a significant increase in the average interest rate on new currency deposits of the population for a period exceeding 1 year: up to 2.12% in May of this year from 1.48% in May of last year.

Thus, the currency of individuals remains in the banking system, which is positive for the ruble. Deposits of legal entities also increased over January-May: by 239 million dollars - to 4.22 billion dollars.

True, foreign currency still remains in the eyes of the majority of Belarusians more attractive than Belarusian rubles. According to the National Bank's “Inflation Expectations of the Population” study for May 2019, 64.5% of residents in our country consider the currency to be the preferred means of savings. But in February, these were 67.1%, that is, there is progress.

True, this does not lead to a special increase in the rate of increase in term ruble deposits of the population. They grow, but slowly. Thus, fixed-term ruble deposits of individuals in May of the current year increased by 62.5 million rubles in comparison with April - up to 4.35 billion rubles. This is higher than the growth in May last year, equal to 45 million rubles, but the situation has not changed fundamentally. And this is despite a significant increase in the incomes of the population.

Russia does not give money

Significant risks for the currency market of the Republic of Belarus are associated with Russia. Reducing financial support from it seems inevitable, since the chances that the two countries will manage to agree on deep integration are small, and without such integration, Russian President Vladimir Putin does not want to refinance even old debts and give the last tranche of a loan to the Eurasian Development Bank. True, head of the Ministry of Economic Development and Trade of the Russian Federation Maxim Oreshkin on June 15 reported that the joint group for the preparation of the program for in-depth integration had agreed on about 90% of the provisions of this program. But the remaining 10% can be a stumbling block.

Anyway, the prime ministers of the two countries should meet on June 21, who, by the way, do not decide anything, and then the decisive meeting between Putin and Lukashenka will probably follow. However, Russia seems unwilling to give in, which is indicated by the appointment of former Russian ambassador to Belarus Mikhail Babich to the post of Deputy Minister of Economic Development of the Russian Federation, who oversees cooperation between Russia and the CIS, as well as issues relating to the “union state” of Russia and Belarus. That is, Mikhail Babich will now engage in the deepening of integration within the “union state”. Thus, Vladimir Putin showed Aliaksandr Lukashenka that he fully agrees with the ex-ambassador.

However, in the near future, the reduction of the Russian assistance to our country will not cause any particular problems, since the Ministry of Finance and state-owned banks of the Republic of Belarus, primarily the Development Bank, are ready to increase borrowing volumes in other markets. In particular, in Britain, China, and even in the Russian bond market. Therefore, at least this year there is nothing to fear.

The inflow of foreign direct investment into the country is also maintained. According to the National Bank, as of April 1, 2019, their value amounted to 22.08 billion dollars, an increase of 1.3 billion dollars over the year.

Reserves instead of economic growth

Thus, in general, the state of the Belarusian finance is not of particular concern. This is indicated by the growth of the country's foreign exchange reserves to 8.1 billion dollars as of June 1, 2019.

But there is another problem. This prosperity is explained by the tight monetary policy pursued by the National Bank and the Ministry of Finance. And this leads to low rates of economic growth in the country. In January-May, the Belarusian GDP increased by only 1%, and this despite the fact that Lukashenka is demanding 4% growth for the whole year.

Lukashenka and the government of Belarus are still trying to implement it through the development of exports, and not the domestic market. God forbid, of course, although these plans in the conditions of trade and currency wars are unlikely to be realized. When the leaders of the country realize this, they can decide that the country does not need to accumulate reserves, but to develop the economy. But in the coming months, this is unlikely, since the government is still full of enthusiasm and is strenuously promoting exports.

Thus, the internal reasons for the collapse of the Belarusian ruble are not visible. But the import of financial instability from abroad is quite possible. There is now a currency war, and the real war is brewing. If the crisis deepens, the Belarusian ruble will not be able to remain strong. Even in the case of failure of the negotiations between Belarus and Russia regarding further integration, trouble may occur on the currency market of the Republic of Belarus. These are the two main factors that could lead to the collapse of our ruble in the coming months. And the likelihood that both will work is great. In the latest review of the global energy market, made by the Bank of America’s Merrill Lynch, there is an increase in the probability of a decline in oil prices to $ 40 per barrel (unless China and the United States agree). And in Morgan Stanley they calculated that the exchange rate of the Russian ruble would fall to 72.5 rubles per dollar. In this case, the scenario of the last year can be repeated in the Belarusian currency market.

Uladzimir Tarasau, Belrynok