Axe Instead Of Scalpel

Aliaksei Mazartau
17.03.2025, 10:30
15,418

How will a new National Bank Head affect the Belarusian ruble?

On Monday, March 10, Aliaksandr Lukashenka completed the formation of the government. He appointed Aliaksandr Turchyn, Chairman of the Minsk Regional Executive Committee, as the new Prime Minister, while former Prime Minister Raman Halouchanka took over as head of the National Bank.

And if the Belarusian economy most likely does not notice the change of prime minister, then we can all feel the replacement of the head of the National Bank.

Not only because Pavel Kallaur has been a personal guarantor of Belarusian financial stability for the past ten years. The main thing is that this appointment of the former Prime Minister as the head of the National Bank means a change in the role of the National Bank in the Belarusian economy.

"This appointment is due to the fact that Raman Aliaksandravich [Halouchanka] always wanted more involvement of the bank, the banking system in the economy. Experienced person. A very important assignment. I believe that he and Aliaksandr Henrykhavich [Turchyn] will find a common language and finally raise some issues in our economy that relate to its financing," said Aliaksandr Lukashenka.

The tight monetary policy of the National Bank saved the Belarusian financial stability after the outbreak of the war and the imposition of sanctions. But now this tight monetary policy is categorically contrary to the plans of the authorities. Because the plan of the authorities, I recall, is to ensure the growth of the economy by at least 4 percent. And the circumstances in order to fulfill these plans are very unfavorable.

Over the past two years, the Belarusian economy has had room to grow. The Belarusian economy grew mainly outward and mainly to the Russian market. But demand in the Russian market is falling. And an alternative to the Russian market, despite all the efforts of the authorities, could not be found.

And if the Belarusian economy has nowhere to grow outward, it means that it should grow inward. That is, to ensure these growth parameters by stimulating domestic demand and through domestic investment. That costs money.

When officials say that banks should be more involved in the economy, it means a simple thing. This means that banks should lend more money. They should reduce rates, they should soften the terms of lending. There should be more loans for enterprises, so that they can increase output and for the population, so that the population has something to buy.

"Of course, I have certain ideas on what needs to be done in order to mobilize the banking system even more," said Raman Halouchanka.

At the same time, it cannot be said that banks are not mobilized enough, and that they give little credit. Over the past year, debts of enterprises to banks increased by 20 percent, debts of the population — by 22 percent. As of February 1, these debts set another historical record. Domestic demand in Belarus grew by 12 percent over the past year.

The National Bank has long tried to limit at least consumer lending. Because the thoughtless flow of loans has a bad effect on financial stability. Price regulation has not even been canceled yet, and inflation in Belarus has already begun to accelerate.

According to the results of February, the increase in prices in annual terms was higher than not only expectations, but also higher than last year. Because the expectations were that it would be lower. But inflation as of March 1 was 5.6%, and at the end of the year it was 5.2. And at the same time, the government promised that the annual price increase would not exceed 5%.

Even the Belarusian authorities admit that their price regulation turned out to be not such a wonderful invention, and they are still going to cancel it. Well, just because there is nowhere to go. Because the finances of Belarusian enterprises will not withstand price control for a long time.

But at the same time, the authorities want banks to pour more money into the economy to stimulate domestic demand and investment. That is, they want to take measures that will increase pressure on the financial market, prices and the Belarusian ruble.

Because the increase in revenues invariably increases the demand for imports. On Tuesday, March 11, the National Bank published data on trade in goods and services for January. The trade deficit in January was $235 million. In January last year, there was a surplus of 145 million.

That is, the country earns less currency than it spends. And this affects the domestic foreign exchange market. According to the same National Bank, the demand for foreign currency in the domestic market for two months of the year exceeded the supply by $220 million.

For almost the entire last year, the currency balance has been saving the population. Because people, individuals, sold more currencies than they bought. But the demand for foreign currency has now become too great and the population is simply unable to cope. If in January Belarusian companies bought currencies worth $2.4 billion, in February their demand rose to $2.6 billion.

As a result, today we have a stable trade deficit, a negative domestic currency balance and inflation, which is higher than expected,despite the preservation of price regulation. And if we add to this equation the strengthening of stimulation of domestic demand due to cheap loans, then we get problems. Both for financial and currency stability. Because growing domestic demand will put pressure on prices and the trade balance, and a negative trade balance will put pressure on the domestic market and the Belarusian ruble exchange rate.

Relatively good health of the Belarusian ruble in recent years, despite all internal and external circumstances, was ensured by the fact that no one touched the exchange rate of the Belarusian ruble. That the rate was formed on market principles. Because the increase in revenues invariably increases the demand for imports. On Tuesday, March 11, the National Bank published data on trade in goods and services for January. The trade deficit in January was $235 million. In January last year, there was a surplus of 145 million.

Relatively good health of the Belarusian ruble in recent years, despite all internal and external circumstances, was ensured by the fact that no one touched the exchange rate of the Belarusian ruble. That the rate was formed on market principles. It was provided by supply and demand. This was one of the main achievements of the former leadership of the National Bank and the subject of its special pride.

But, as the practice of applying the resolution on price control shows, the government of Raman Halouchenka prefers an administrative axe to a monetary scalpel. And this is perhaps becoming one of the main risks for the Belarusian ruble in 2025, driven by supply and demand. This was one of the main achievements of the former leadership of the National Bank and the subject of its special pride.

Aliaksei Mazartau, Belarusians and the Market

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