What does happen to the Belarusian finances?
The crash of the Belarusian ruble, which occured in late August-early September, is likely to be caused by the activity of the National Bank and commercial banks. They decided to weaken the Belarusian currency to support exports. Could it happen again?
Economist Uladzimir Tarasau answers the question in the article for BelRynok.
Strange things happened in August-September on the Belarusian Currency and Stock Exchange. In the first half of August, the supply of foreign currency increased sharply on the stock exchange. It triggered the drop in the rates of major currencies traded on the BCSE. But when the tax payments period was over, the rates began to rise. The process ended only on September 6.
Looking at the dynamics of the Belarusian ruble exchange rate until this August, one can notice another peculiarity. The dollar and euro exchange rates on the BCSE declined until August, while the currencies of developing countries were getting cheaper against the dollar due to capital outflow from these countries or due to currency wars. By weakening the national currencies, the Central Banks of these countries supported their exporters. At the same time, Belarus behaved as if it was not a developing country, but a powerful economic power that did not need exchange rate support for its economy.
Foreign trade disrupts plans
If these two peculiarities are compared, everything falls into place: until mid-August, the National Bank pursued the exchange rate policy following the situation in the domestic market. Then the foreign currency supply exceeded the demand, mainly due to the sales to individuals and the National Bank bought up an excess of supply. At that, it regulated the market to moderately strengthen the ruble to reduce the attractiveness of foreign currency savings.
At that, the exchange rate made neither stimulating nor overwhelming impact on exports and imports, at least on average. Such a conclusion can be made when comparing the balance of foreign trade in goods and services for the first half of the current year with that of the previous one. Thus, this year the balance amounted to $309.8 million, while last year - $430.3 million. The trade balance has declined to minus $1,504.6 million from minus $1,257.6 million in the first half of 2018. But this decline was compensated by the growth of exports of services.
As we can see, the situation has slightly deteriorated this year. But this has a justification: the volume of supplies and re-exports of oil products from Russia to Belarus decreased, as well as the volume of oil refining caused by the supply of low-quality oil from Russia. Therefore, we can say that the monetary policy of the National Bank was neutral in relation to foreign trade.
Thus, it can be considered that the foreign trade of Belarus is as the same as it was last year. This year, the government has planned to ensure GDP growth by 4%. Boost in exports was expected to be the main tool. But this is failing, and the GDP growth rate was only 1.3% in January-July. Nevertheless, the government expects that the situation will improve in the coming months. In particular, the Belarusian oil refineries will be able to compensate for the decline in production that occurred this summer.
Exporters need support but do not receive it
Despite such hopes, it would be natural to support Belarusian exporters with the ruble devaluation. It has seemingly happened.
The meeting on hot-button issues of the Belarusian economy development of September 4 proves it. At the meeting, Lukashenka stated that the main objective of the government was the implementation of the country's economic development plans for 2019. He said nothing about the GDP growth rate, although this is the key indicator.
Besides, Lukashenka stressed that the main task is to diversify the markets for Belarusian goods, without losing profitability, and noted that the country was moving too slowly in this direction. As you know, the government has a goal to conquer the markets of third countries so that the country could export only the third part of its goods to Russia, Europe and other countries.
This is where the exchange rate policy becomes increasingly important. The thing is that trade and currency wars in the world market caused a sharp drop in the currencies of these third countries against not only the dollar but also the Belarusian ruble. That is, the competitiveness of Belarusian goods in the markets of other countries has sharply declined.
It turns out that the exchange rate policy of the National Bank, which is neutral towards the foreign trade of Belarus as a whole, towards foreign trade with third countries is a deterrent, as it hinders exports.
The obstacle is pretty significant. For example, as of September 5, the exchange rate of the Chinese renminbi declined by 5.9% from the beginning of this year. It happened after the adjustment (collapse) of the ruble exchange rate in late August-early September. For many other countries, the situation has become even worse. Thus, the exchange rate of the Turkish lira fell by 10.1% during this period. It reduces the competitiveness of Belarusian goods in these markets and reduces the revenue of Belarusian exporters. Of course, this analysis should take into account the growth of prices in the domestic markets of various countries, which can compensate for the devaluation effect. But this growth, as a rule, lags behind the exchange rates fluctuations.
The situation is similar to other more countries. However, the situation has improved against the Russian ruble as a result of the adjustment. Its exchange rate has increased by 2.6% since the beginning of the year. The hryvnia rose by 0.8%. But it does not work for third countries.
Forecast: the ruble should devalue
Thus, the exchange rate policy in Belarus did not aim to support the conquest of developing countries' markets, or even China. It is very likely that the management of Belarus discovered this fact and decided to adjust the behaviour of the National Bank. This is the adjustment we observe.
It is possible that a market maker - a large bank that has decided to adjust the rate of the ruble or on someone else's instructions - is doing it instead of the National Bank. This means that the Belarusian ruble may now act like the currencies of other developing countries, i.e. follow the fluctuations of these currencies in the Forex market.
Further depreciation of the ruble is possible. It's hard to say to what extent, as it's not known yet what currencies the government or market-makers will focus on. The renminbi is a potential candidate. After all, Belarus is going to conquer the Chinese market, and if the ruble strengthens against the renminbi, it will not happen. But it may focus on the ruble, the hryvnia, or a basket of similar currencies.
The described reason for the events is, of course, hypothetical; other options are also acceptable. The situation will clear up in the next couple of months, which makes possible to predict similar events in Belarus, if there are any.