The sanctions are having a much wider and more serious effect than one might have imagined.
The republican budget deficit grew to 1 billion 561.6 million rubles in June. The public debt of Belarus also hits new records high. Meanwhile, there may be no external borrowing for the regime because of the sanctions.
Charter97.org discussed the situation in the financial sector of Belarus with economist Leu Marholin.
- What consequences may the growing budget deficit entail, as the possibility for the government to borrow has decreased manifold?
- If there are no sources to finance the budget, there are two options. Either it can be sequestered, that is, expenditure items can be cut, which can partly be done relatively painlessly. For example, to cut the investment program, not to build or reconstruct some objects, not to purchase some equipment and so on. Thus, the budget shall equalize.
There are still some balances in treasury accounts, which are not spent. The government was counting on them in previous years, but the budget deficit has far exceeded initial estimates.
If spending cannot be reduced, there is only one way - to switch on the printing press. An inflation tax is imposed on the whole population, as they say, in a thin layer to finance some items of budget expenditure. All of these variants we will see or feel one way or another.
- It is known that officials have saved on education and health care in 2020, but have spent on national defence too much. How would you assess such a decision?
- There are items in the budget that are not subject to cuts, sequestration. It relates to salaries, the purchase of medicines. In other words, instead of building a school or a polyclinic, the money was spent on defence. It is likely to remain unknown what it was spent on.
The budget in our country is such a semi-closed thing. The budget may be available, but only the investment programme is made public. It is adopted by the "parliament" as a general figure. Even our so-called "deputies" do not know what is to be built within the allocations for which they voted.
This, as they say, is not for us to decide. If it happened in a democratic country, people would think twice at the next election whether to vote for such a government. Unfortunately, we have no such an opportunity at the moment.
- Indebtedness of the Belarusians for loans is approaching a record high level. As of today, the debt is almost 15.8 billion roubles. What do these statistics indicate?
- This figure alone is not very informative, because the service of these loans is more important. If they are growing, being serviced and no problems arise, it indirectly shows that the welfare of the people is growing. However, if the number of non-serviced loans grows along with loans, i. e. loans that are not repaid yet or have overdue interest, it means that people have no other way but to take loans to solve family problems.
Let's remember that it's August and the children are about to go to school. That's a pretty big one-off expenditure. Many people will probably go to the bank to take a loan. They receive a loan because most of these people have not had a negative credit history. However, there is no guarantee the situation will never change. One should keep an eye on the share of non-performing loans.
- The Austrian media reported that Raiffeisen Bank had limited its cooperation with Belarusbank because of sanctions. What consequences may it cause?
- There could be two types of consequences. Firstly, it is a restriction on lending to the bank. The fact is that, in addition to government loans, there is corporate lending. Both banks and businesses, especially large ones, take loans. And both banks and businesses mostly take loans in Western markets.
The sanctions imposed manifest themselves in the position of Raiffeisen Bank. Firstly, there will be difficulty in refinancing if any additional resources are needed. Secondly, it is a decrease in liquidity, i.e. not only loans but also payments in a foreign currency will be hampered.
Imagine, if payments between Belarusbank and foreign banks used to take half an hour, then, of course, working capital in the bank would be much lower than if these payments would take a day, two, or three days. Other banks may refuse to cooperate with Belarusbank and other state-owned banks following Raiffeisen Bank.
There is another option when any payments that come to Belarusbank are scrutinized under a microscope, which does not add much to the speed of money turnover either. It means banks need more working capital, but there is no place to get it.
Payments will slow down, and clients of these banks will suffer. If customers need to pay for some deliveries within a month, they will have to pay, say, two weeks in advance in order not to break their contractual obligations. It is like sand in an internal combustion engine, i.e. it starts squeaking and slowing down.
- Can this situation with the banks become a trend?
- I think it has become a trend. Some decisions get into the media, and some don't. Some banks announce their decisions, and some do the same but without any statements.
Sometimes it doesn't even require a decision by the bank itself. There are bank employees who have heard that sanctions are imposed on Belarusian banks. So, this employee receives a payment slip and does not know anything. Either he goes to his bosses to clarify the situation, saves the order, or returns it to the payer. These three options are not the best way out. I think most banks, at least in Europe, will follow this logic. It does not have to be publicised.