Economist: Belarus Will Face a Powerful Devaluation Due to the Insanity of the Authorities

Lucanomics is approaching collapse.

Naftan remains without Russian oil, the placement of Belarusian government bonds on the Russian stock exchange, according to reports from several sources, is postponed indefinitely, and business with foreign capital will be "checked." What will happen with economic growth, income, and the ruble against the background of these events?

These questions were answered by the Myfin.by analyst of the BusinessForecast research group Aliaksandr Mukha.

Credit and oil political leverage

- There is a feeling that the decrease in supplies to Naftan to a practically zero level (50 thousand tons) and the fact that the third tranche of the September loan of $ 1.5 billion has not yet been allocated by the Kremlin are a consequence of political disagreements. After all, we do not know what conditions were put forward by the Russians.

It is precisely the “inconsistencies” in the negotiations between Minsk and Moscow that seem to me to be the primary reason that the Navapolatsk plant can stop from day to day, and half a billion dollars, which the Belarusian authorities need more and more, are still “stuck” in Moscow.

The Russian financial market will not save us

- Although there is no formal delay - it was about the allocation of this tranche of the loan in the first half of 2021. But the level of gold and foreign exchange reserves hints that the currency is more and more needed.

In this regard, it is not worth making a big bet on our “Russian” bonds, the placement of which is rumored to be “postponed.” Firstly, it is about Russian rubles, and, secondly, the amount is small - equivalent to $ 100 million.

Yes, the Ministry of Finance also needs Russian rubles, but the volumes are incomparable with the placement of sovereign Eurobonds in international financial markets, denominated in dollars. There it was about a billion, here - about 100 million in equivalent. But this amount is another lever of influence on the Belarusian side.

From what we see at the moment, it is important to note that there is an increase in credit dependence on our main creditor - the Russian Federation.

But the fact is that Russia is not ready to compensate the government of Belarus and other residents of Belarus for the loss of the opportunity to receive loans on international financial markets.

Indeed, even two out of three tranches of the 1.5 billion loan are, in fact, only an extension of the existing obligations of the Belarusian side to them. These credit resources are intended primarily for the Belarusian authorities to fulfill their previously accumulated obligations to Russian counterparties. Before the same Gazprom.

Oil on a roundabout "pipe"

- The lack of supplies to Naftan can also be used as a tactical tool in political negotiations. It's hard for me to judge, but perhaps there will be some loopholes through which these supplies will be resumed, bypassing the US sanctions, which the Russians are so afraid of. But this will raise the cost of delivering crude oil to Naftan and reduce the profitability of refining at this refinery.

If supplies are really sharply reduced, then this may lead not only to a sharp deterioration in the financial position of a strategically important enterprise for Belarus, but it will hit the Belarusian economy very noticeably. The volume of export of Belarusian oil products will fall, the foreign exchange earnings in the country will decrease, the supply of foreign exchange in the domestic market will decrease with all the ensuing negative consequences in the form of accelerating the rate of devaluation of the Belarusian ruble.

And, of course, this will lead to a fall in tax and other revenues to the budget, the deficit of which is already huge and continues to grow - nevertheless, Naftan is a serious donor for the budget. Not to mention the fact that the possibilities of the enterprise itself to raise wages are significantly reduced. Up to its possible reduction and "revision of the number of employees."

But I, frankly, do not have such a deep knowledge of possible sanctions against Russian companies that may not supply oil directly. They can start, for example, using "gasket firms" or even chains of such fly-by-night companies. Or look for other workarounds. The same Transneft, a Russian state-owned company, may start supplying oil to a company registered offshore - in the Seychelles or Belize. And there, the ultimate beneficiary is not known - it is a "black" offshore. They do not disclose data. And what will the company do with this oil - this is only its business, not Transneft.

Or another option - Belstat will close the data on the supply of crude oil. And how do you know what kind of "gasket" helps out?

Therefore, I would not yet consider the stoppage of supplies as a fait accompli. But the situation clearly looks much more complicated than with the sanctions that the United States imposed on Belarusian companies the previous time.

Suicide war with foreign capital

- A possible "test" campaign of enterprises and organizations with foreign capital is a shot in the foot. Because all of these enterprises are residents of Belarus. The same Priorbank is a subsidiary of Raiffeisen Group, a leading international banking holding, but it is a resident of Belarus, serving other residents of our country - both legal entities and individuals.

And to worsen the operating conditions for any business entities with foreign capital is madness.

We can only guess how serious this pressure will be - after all, from an economic point of view, it is absolutely inexpedient. And representatives of state bodies are aware of this - you can only harm yourself and worsen the already rather difficult economic situation in the country.

Of course, worsening conditions and a decrease in oil supplies, delays in the allocation of newly borrowed funds to the Belarusian side, and a possible campaign against enterprises with foreign capital will have a negative impact on GDP, incomes of Belarusians, and the ruble exchange rate. And it's not for sure that Naftan's problems are the most significant in this case.

The inability to receive loans on the international market, which will surely happen in the event of a “war” with foreign companies, is like a blockage of a part of the blood vessels in the body - it may not lead to a quick death, but it will undermine economic health.

This is a great danger and growing risks for the Belarusian economy - we have accumulated a record external debt of all residents - not only the government but also those companies in which the state's share exceeds 50%. These debts are denominated in foreign currency and exceed $ 42 billion.

The basis of the problems is the political crisis

- All the problems mentioned above stem from the political crisis in the country. And the losses associated with the unsettled political crisis in Belarus, in my estimation, amount to at least 2.7 billion a year.

This is a significant blow - even now the economy is not functioning normally, and the figure of losses includes everything - from the rise in the cost of external borrowing and worsening access to them to a drop in domestic demand and an increase in emigration. Even an increase in the interest rate for external lending by 1% gives a "minus" of $ 420 million (with the current volume of external debt).

The other side of the coin is that, due to the de facto impossibility of receiving loans in the foreign market, the Ministry of Finance placed over $ 800 million in government bonds in the domestic market in January-April. With a high degree of probability, they were voluntarily and compulsorily bought by commercial banks.

But this approach - a large-scale placement of government securities - contributes to the effect of crowding out loans to the private sector and the population.

When (recalling the analogy with blood vessels) the Ministry of Finance is deprived of the opportunity to place a new issue of Eurobonds, in a situation of deteriorating conditions for external borrowing, including through the government of the Russian Federation, it is forced to “find” this money on the domestic market.

Deprived of foreign exchange liquidity, banks are forced to commensurately reduce the volume of lending. This chain negatively affects the financial position of Belarusian companies.

In particular, this is expressed (if we analyze Belstat data on the state of calculations) in the growth of enterprises' problem debts. They are deprived of the opportunity to refinance on acceptable terms. Their profits are falling, profitability is decreasing, and overdue debts are increasing.

This is very dangerous - further growth of overdue debt in the economy may be fraught with an increase in the number of bankruptcies. This can seriously harm economic dynamics.

The threat to the Belarusian ruble is real

- As for the exchange rate of the Belarusian ruble, all other things being equal, a drop in oil refining volumes, a lack of external lending, and an increase in tension in relations with the West are fraught with an acceleration in the rate of devaluation of our currency.

The chain is as follows - a decrease in foreign exchange earnings, a decrease in the supply of foreign exchange in the domestic market, and the persistence of elevated devaluation and inflation expectations, which contributes to the maintenance of high demand for foreign exchange on the part of legal entities and individuals.

The impact of various factors linked to the political crisis is already quite tangible, but it could be even greater if the situation starts to develop according to a negative scenario. Then the losses may not amount to $ 2.7 billion per year but much more.