What will happen to the Belarusian ruble?
From February 1, the Lithuanian government will stop the transit of Belarusian potassium through its territory. This is due to the US sanctions against Belaruskali that are to come into force in April. According to experts, Belarus may lose about $2-3 billion of foreign exchange earnings due to the transit ban, and it will be problematic to set up new supply routes even during this year. Katsiaryna Barnukova, Academic Director of BEROC, told Myfin.by about how this will affect the foreign exchange market and the entire sector of the economy.
Stopping the transit of potassium: everything is bad. And it's not just about the money
Last week, news about the tightening of sanctions came one after another: first, the Lithuanian government announced that it would stop the transit of Belarusian potash through its territory from February 1, then Latvia confirmed that it would assist this decision and do not let Belarusian potash pass through its country, and then one of the major clients of Belaruskali, the Norwegian company Yara, announced the termination of the contract. How serious will the consequences of these decisions be?
-Indeed, in just a week we went from a situation of “sanctions do not really work,” when potash continued to be transported, and Yara bought it, to an absolutely opposite situation. And if with the Norwegian company we talked about relatively small volumes (up to 10% of the total export of Belaruskali), which could be painlessly replaced, then stopping the transit of potassium takes the situation to a completely different level. Almost all Belarusian potash went through Lithuanian ports, which, in fact, cannot be replaced.
For example, in the story with oil products, Russia itself lured Belarus - they say, let's transport oil through our ports, but with potassium we can’t count on Russian help anymore - there are not enough capacities for an adequate replacement: we need large free volumes of both trains and special terminals in ports. And there, for them, is a competition with Uralkali (a major Russian producer of potash fertilizers).
Previously, there was still hope that it would be possible to create intermediary companies that would supply potash not directly from Belaruskali. But the Lithuanian government is serious about complying with the sanctions regime; there was a statement that all intermediary companies that will try to transport Belarusian potash will also be subject to restrictions. Latvia is also ready to help in compliance with the sanctions. They said that they would not allow the transit of potassium from Belarus bypassing Lithuania - through their territory and ports.
It was almost impossible to prepare for such a development of events, although it was calculated in a year. A new port terminal in Russia cannot be built so quickly.
Perhaps they will try to supply potash to China by rail. Although this significantly increases the cost of transportation, potash prices on world markets still allow for additional costs. However, everything rests on free trains, which will not be able to fully compensate for the volumes that were supplied through Lithuanian ports. In addition, there is still no news about the signing of a new contract for the supply of potash to China. Let me remind you that the previous one ended in December last year. China was clearly waiting for the moment to bargain for good terms for itself against the backdrop of sanctions.
Most likely, of the $2-3 billion a year that Belarus could receive from potash exports this year, about 80% of the funds will be lost.
Moreover, losses will come in waves not only in the chemical industry, but also in all contractors associated with it: Belarusian Railways, wholesale trade, logistics companies and other sectors of the economy will suffer. In general, we may lose about 1-2% of GDP growth this year.
There is nothing to compensate for the losses
-Is there a chance that the shortfall in foreign exchange earnings will be compensated by exports of other items, especially since world prices for Belarusian exports are now rising?
- I'm afraid that this year it will be almost impossible to restore potash exports if Lithuania maintains its principled stance. The rest of exports continue to grow in value terms. However, most international experts are betting that the price situation will begin to stabilize this year, and one cannot count on export growth as in 2021. The irony of fate is also in the fact that the maximum increase in prices is observed precisely for potash fertilizers. Also, do not forget that other export positions of Belarus, for example, oil products, also fall under the sanctions. Therefore, there is practically nothing to compensate for the losses.
What is important to note is that the loss of revenue will not be critical for the country, although this is also important. But over the past year, we have accumulated a currency cushion, which will allow us to avoid any serious problems, including with the currency on the domestic market and the ruble exchange rate. The issue of supporting Belaruskali itself will become more problematic. This enterprise actually forms the whole region, which financially depends on it. Now we will have to solve the issue of supporting employment, wages, social benefits, maintaining production capacities and output. All this will require serious cash injections. 900 million rubles, which are included in the budget to overcome the consequences of sanctions, will come in handy here.
Stop inflation. Who will pay for price containment in retail?
As part of the fight against inflation, MART entered into an agreement with retail chains to provide a 10% discount on socially important goods for vulnerable categories of citizens (pensioners, large families). How much will this really affect prices and who will end up paying for this maneuver?
-This is a rather original decision for the Belarusian realities. Although you can remember how state retail chains used to do something similar when they made discounts for pensioners. The key difference this time is that the state is trying to shift the responsibility for rising prices to private business. Moreover, for only one part of this business - retail, which does not show any excess profits. The increase in prices above 10% per year, which we see, is associated with objective factors - the rise in the cost of food products around the world. Therefore, quite unexpectedly, retail chains were forced to control prices.
Here, of course, a question arises, how will inflation be measured under these conditions? Will the CPI (consumer price index) now include discounted items? In addition, we saw what the fight against price increases in retail led to during the year: business returned to the old practices of changing the range of goods, reducing packaging and other “tricks” in order to circumvent government-imposed restrictions on price increases. The same thing could happen now - retailers will respond with new steps to make up for the losses from this 10% discount. For example, they can actually raise prices both for state-regulated goods (in the ways described earlier) and for the goods that are not included in any lists.
In any case, someone will pay for this, and unfortunately, this someone will be neither the state, nor retail chains, but other buyers.
There are also questions about the list of vulnerable categories of citizens. It clearly does not cover all really needy groups of people. Here they went in a simple way: a person in need must have some kind of official document - a certificate of a pensioner, a document confirming having many children or receiving targeted social assistance. However, in our country there are about 1% of those who receive such assistance, and about 5% of the population living on an amount below the subsistence minimum. These are not only large families, but also single mothers with one or two children, and the unemployed, and people with children who receive the minimum wage.