Economist: Either Inflation or Unemployment Is Awaiting Belarus

The authorities have no reserves to cover the budget deficit.

According to the preliminary estimates of the Ministry of Finance, the budget deficit of Belarus for 2021 may amount to about 2% of GDP, Finance Minister Yury Seliverstau said recently on the Main Air of BT.

Also, the Ministry of Finance of Belarus does not exclude an increase in the republican budget deficit in 2020 to 5 billion rubles.

Uladzimir Kavalkin, the head of the project "Kosht Urada," told Ezhednevnik how critical is the figure of 2% of GDP. He called this figure significant, given that reserves are running out, and there is nowhere to replenish them.

"This will lead either to inflation or to an increase in unemployment. In any case, the standard of living in the country will fall greatly," the expert said.

As explained in the Ministry of Finance, the state will have to optimize costs. What areas will this affect?

First of all, according to Kavalkin, this always applies to various investments in the broadest sense of the word.

"Investments are understood as expenses related to capital investments," he said. "This can be the cost of building social facilities: schools, kindergartens, hospitals, universities, the purchase of new modern equipment for these institutions."

The expert added that the state, in the event of an existing budget deficit, most often cuts these expenses.

"As for local budgets, it is likely that there will be reduced costs associated with improvement, housing and communal services, and the construction of roads," he said.

Why did the budget drawdown occur?

According to the expert, several factors played a role here. The first and one of the most important in terms of material impact on the economy is the Russian tax maneuver in the oil industry, and as a consequence of it: the Belarusian authorities will no longer receive export duties on oil.

"The second factor is a large national debt, which is difficult for the country to serve. It may not be critical from the point of view of public debt to GDP at the moment, but it is critical from the point of view that it is mainly formed in foreign currency, "said the head of the "Kosht Urada" project.

This means that in a situation of inflation, the burden on the budget will increase. In other words, if the ruble depreciates, it will be necessary to spend more rubles on purchasing dollars in order to repay the debt.

The third factor, Uladzimir Kavalkin, called the events that took place in the country on August 9-11, and everything that followed. The state has undermined the credibility of citizens and businesses, the expert said.

"Business for the next five years will try to withdraw funds from the country and reduce investment, which will mean a slowdown and attenuation of business activity. Accordingly, the collection of taxes will fall," he said.

According to Kavalkin, all these factors will put pressure on the economy in the coming years and destroy the well-being of Belarusian citizens. The scenario in which the standard of living will fall is realistic, and this trend is long-term, if the political situation does not change, he stressed.

"The main currency is trust. But the authorities do not have it"

As Uladzimir Kavalkin explained, the currency itself does not mean anything as such. It acquires some meaning when citizens believe that they can buy something for this piece of paper and that the state will fulfill its guarantees.

"The main currency is trust in society. But there is none. In the current socio-political situation, in the short and medium term, there are no economic levers to solve this problem. They lie in a different plane," he said.

According to the expert, no matter how the finance minister or the head of the National Bank tries to solve economic problems by economic means, in this particular case, they will not succeed. Because they do not have the leverage that is necessary - they are in the hands of politicians.

"All that the economic authorities can do is to make the fall smoother and less catastrophic for certain groups of citizens," concluded Uladzimir Kavalkin.