Resignation of Government and Devaluation Await Belarus?

The economist made a forecast.

As well as a year ago, September 19, Lukashenka threatened the government with resignation in case of failure to fulfill his orders. Then many officials were resigned. What will happen this time?

Not devaluation, but something like that

It would seem that the new government should have learned the lesson of its predecessor and this situation should not have reoccurred. However, around a year after its appointment, the situation is almost copying the events of 2018: Lukashenka is again threatening the government with resignation, and, in fact, for the same reason.

Formally, the situation looks different. Former government fell out of favour for "sabotaging" Lukashenka's order to ensure a salary of Br1 thousand, although the budget had a surplus and there was money for wage growth.

It seems that the present government is trying to "sabotage" the order to increase GDP by 4% (the budget has still a surplus, but the government does not spend money on the economic recovery), which calls into question the achievement of the goal of GDP growth up to $100 billion. However, the "approval" of Lukashenka complicates the situation.

Lukashenka recalled the "elections

It became clear after the meeting with Lukashenka on September 19. The meeting considered the results of the current year and draft forecast documents for 2020.

It turns out that three out of seven forecast parameters for the current year have not been met yet: export growth, GDP growth and labour productivity. In this regard, Lukashenka stated that "everything planned must be implemented," and if "the parameters for 2019 are not met, all those responsible - Prime Minister and so on - will be dismissed".

He also stressed that he is concerned that the economic growth in the country is "not only modest but also extremely unstable, to put it mildly. This trend must change. One who has a desire and ability can stay and do it".

Indeed, at the end of January-August this year, the GDP of Belarus has increased by only 1.1%, while the target figure is 4% and the growth rate of 1.3% in January-July.

Lukashenka also noted that the officials who listened to him and fulfilled his orders would continue to work with him, and offered objectors to resign. "If Rumas and Kachanava, Deputy Prime Ministers and Ministers don't hear me, you'd better take your briefcases and leave immediately".

Lukashenka also said that "we can't take the position of outside observers and be satisfied with the balance, which is fictional, written on paper. People, who trusted us during various campaigns, including political ones, wanted different".

This was addressed to the head of the National Bank of the Republic of Belarus Pavel Kallaur, as he is the one who keeps talking about some balance and stabilization.

After being criticized on 19 September, Prime Minister Siarhei Rumas showed cool determination and said that the government would make every effort to catch up. He did not say that the plans for the GDP growth would be met.

The National Bank does not expect 4% GDP growth

It's not known yet how it's going to be this time. On the one hand, despite Siarhei Rumas' promise to do everything possible, the government will hardly be able to reach the GDP growth of 4%. Thus, the experts of the Eurasian Development Bank believe that there will be no significant and sustainable acceleration of the GDP growth rate in the short term in Belarus. They wrote about it in their monthly analytical review in August 2019.

Experts note that short-term factors, in particular, good weather contributed to the economic growth acceleration up to 1.3% in January-July 2019. This process has already suspended. Indeed, in January-July 2019, the GDP growth rate decreased to 1.1%, and this was caused by a decline in agricultural production.

Even the National Bank believes that GDP will increase by only 2.9% this year. Pavel Kallaur stated this in an interview with the British fDi Magazine. It included materials on investment opportunities in Belarus, financed by the National Agency for Investment and Privatization of Belarus. The head of the National Bank reiterated the need for structural changes in the country and urged foreign investors to invest in Belarus and to believe in further improvement of the business climate here. There is some hope for this, but amid the approaching global economic crisis, investors are now trying not to invest money in emerging markets, but to withdraw it.

However, the government is still seeking ways to increase GDP and exports. In particular, on September 24, Siarhei Rumas held a meeting with transport companies. It discussed measures aimed at increasing exports of transport services. However, Minister of Transport and Communications of Belarus Aliaksei Avramenka admitted that there would be no growth, exports would remain at the level of last year and would amount to about $4.5 billion.

Forecast: the government will keep working

Thus, there is no chance of fast GDP growth in the coming months. But the government's resignation may not happen. There is an essential difference between the current conflict and last year's one, indicating that the president is unlikely to take radical measures. Namely, the government and Lukashenka are avoiding any specific figures. They neither discussed the GDP of $100 billion nor talked about the plan of GDP growth by 4%. This may have a reason: Lukashenka cannot be blamed for a failure to fulfill his threats to resign the government. The government has several scenarios of economic development and the growth of 4% corresponds to the most optimistic one. Therefore, he may always say he meant the growth under not the most optimistic scenario.

That is, Lukashenka's intention to dismiss the government do not seem very serious so far. The fate of the government largely depends on the mood of voters during the "parliamentary" and "presidential elections". If Lukashenka considers the moods negative, he may take a demonstrative resignation of the government. That is, if the government fails to provide the people with bread, Lukashenka will provide the people with circuses.

As for the devaluation of the Belarusian ruble, it can be one of the measures to support the Belarusian exports, as well as a consequence of the relaxation of monetary policy of the National Bank and the government. This is quite possible, as they do not have a lot of funds to accelerate GDP growth. They have held out enough without the relaxation (aside from the increase in wages at the expense of the budget), resulting in such a low GDP growth rate in our country. China and the United States are stimulating their economies, and they are growing without any foreign investors. At the same time, China is slowly devaluing the renminbi, and even Donald Trump is trying to devalue the dollar, though largely in vain so far.

Vladimir Tarasov, Belrynok