23 April 2021, Friday, 17:43
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Record Budget Hole: The Authorities Have Two Choices

Record Budget Hole: The Authorities Have Two Choices
Barys Zhaliba

And both are known to be losers.

The Belarusian authorities planned the 2021 budget with a deficit of BYN 4 billion, now there is news that a "hole" of BYN 5.610 billion is being formed. This is an absolute record. Charter97.org spoke with Doctor of Economics Barys Zhaliba about the situation with the republican budget.

- Are these numbers critical?

- I think they are because the social specialists of the Ministry of Finance, when it came to 4 billion rubles, said that “this is not critical, we can manage it, we will find the sources of the deficit.” Do you have any fresh data from the Internet? 5.6 already?

- Yes, exactly this figure.

- I think that if 4 billion was at the limit but not yet critical, then everything above is already critical

- What consequences for the economy should Belarusians expect from the budget deficit?

- The consequences are unpleasant. Firstly, the Ministry of Finance needs to look for additional sources to cover this deficit. There are usually two main ones. Bond, when the ministry issues short-term bonds and borrows funds in the domestic market. The second one - in foreign markets.

The last placement was in June last year; they took two issues, if I am not mistaken, 1 billion 250 million dollars. It is necessary to increase these issues and place them, but there are difficult questions: where to place, who will buy, and at what yield. If the profitability is high in percentage terms, then it is bad for the Ministry of Finance because it will have to pay it later.

In connection with the latest events in August, the European market, where the Ministry of Finance placed the so-called Eurobonds, does not react well to our political events. And the question arises: who will buy?

Experts think that few people will buy, and these are usually Western banks and financial, social funds. If someone buys, given our low financial rating, then at a very high yield, which will be 9-10% per annum. For the euro and the dollar, this is a super high yield, how are we going to pay it later? It will not be possible.

Then the domestic market remains, but according to the plan, the Ministry of Finance was supposed to place bonds on the domestic market, they are also mainly foreign currency, for $ 200 million. At the beginning of the year, it already blocked this plan by placing $ 600 million to save the Belarusian Metallurgical Plant from bankruptcy. So again the question is: who will buy inside the country?

The second source is to go for money emission, to close the deficit by turning on, as the people say, the printing press. By issuing unsecured money into the economy, empty money, as we say among the people, covers the deficit and, of course, this is immediately reflected in an increase in inflation, then devaluation, that is, a weakening of the ruble exchange rate and all the "charms" with which we are well familiar.

- Will the authorities be able to fulfill all external and internal financial obligations assumed without external borrowing?

- You can definitely answer that no. You can try to place bonds on the Russian market because the attempt to place them on the Chinese market failed. The bonds were high yield, which is difficult for the Ministry of Finance to redeem. The Russian market for bonds and Russian loans are left. This is the only way we can go through a year with this deficit.