A New Loan from Russia – A Temporary Lifejacket
The growth rate of inflation in the 1st quarter of 2014 amounted to 6.6% and made plans for reaching the official targets for annual inflation highly unlikely.
Despite this, a gradual reduction in refinancing rates with a second round of cuts has been preserved. It was also accompanied fixing the maximum rate of ruble loans at a rate of 39.4% for companies.
By the end of April the international reserves of Belarus decreased by $238m, bringing them to a total of $5.477bn. This number signals the lowest amount of reserves that Belarus has seen since November and makes the problem of attracting capital all the more difficult.
However, a new loan from Russia will allow officials to postpone making any macroeconomic adjustment policy decisions for now. The authorities are not keen on introducing any unpopular reforms in a pre-election year.
Inflation and Refinancing Rates
Consumer prices grew by 1.6% in April, and in January-April inflation reached 6.6%. It appears rather obvious at this point that the authorities will not succeed in reaching their planned annual inflation rate of 11% and it will likely rise at least 5-6 points beyond what the government had planned for.
At the same time a reduced refinancing rate of 21.5% was set in April and May and signals the possibility of a decrease in rates for for the Belarusian ruble. This move supports the decision of the National Bank of Belarus (NBB) to fix the maximum interest rates on loans to legal entities in national currency at a maximum rate of 39.4%.
This decision came into force on 8 May 2015 and will be in effect until at least till 1 January 2015. An attempt to make it easier for for the enterprises to access financing is the primary function of this decision. However, there is a good chance that this will boost inflation, with its’ already high rates.
The possibility of rising inflation together with devaluation expectations from average Belarusians may increase the volatility of national exchange rate vs. foreign currencies and decrease demand for the Belarusian ruble.
Dynamics of the currency market
Over the past months there has been a noticeable trend on the currency exchange market with U.S. dollar vs. BYR (Belarusian Ruble) finally reaching the psychologically round figure of 10000 BYR for $1.
In general the situation for the currency market remained stable, including its more negative tendencies. In recent months the smooth nominal devaluation of the Belarusian ruble has continued with the main factors influencing the situation being inflation, a decline in foreign currency reserves together with rising devaluation expectations among Belarusians.
Demand for foreign currency serves as evidence of increasing devaluation expectations. In January 2014 the net demand on foreign currency was $(-99)m, while in March 2014 it amounted to just $(-10.3)m. The situation which has developed means that Belarus must attract external sources of financing as only the nation's meagre foreign reserves are available to prop up the Belarusian ruble.
New Loan to Help Stabilise Foreign Currency Reserves
In April, there were no signs of improvement with the foreign exchange reserves of Belarus. The prior downward trend did not abate and a monthly reduction to the tune of $238m hit the state's coffers, while the cumulative drop from January – April 2014 has reach a sizeable $1.2bn. At the beginning of May the total reserves sunk to $5.477bn. This reduction in the nation's currency reserves signals that Belarus has only limited resources available for the maintenance of its economy.
Belarus' inability to attract foreign investment partially explains the dip in foreign exchange reserves. According to official statistics in the 1st quarter of 2014 the net FDI in Belarus was $822m. This figure, however, is deceptive as it was likely the result of money being reinvested in the economy. In other words, there was likely no new foreign capital investment into the Belarusian economy.
However, it appears that the authorities will be able to sand off the rough edges of the current economic situation. In the beginning of May it was reported that Russia will provide a loan in order to help Belarus maintain its foreign reserves. Belarus expects to obtain the promised funds in May. The expected sum to be transferred is about $1.5bn, the remainder of a $2bn loan, that was approved by Russia at the end of last December.
Moreover, it looks like Russia’s decision to allocate the rest of the loan will be accompanied by a reduction of export duties on oil and oil-related goods. This welcome news means that Belarus may acquire a significant sum of money through reselling the oil, though it does not come without a hitch. Russia is planning on introducing a new tax for mining operations that will raise the costs associated with delievering oil to Belarus and will mitigate the benefits that Belarus had hoped to gain through reduced export duties.
One possible reason for the generosity and pliability of Russia is to ensure that Belarus will sign the agreement on the formation of Eurasian Economic Union after negotiations felt flat in Minsk at the end of April. Nevertheless, obtaining these funds will allow the Belarusian ruble to sit at a stable level and postpone any threats of its devaluation. Taking into account that presidential elections will occur in 2015, the authorities are doing their best to prevent Belarus from facing any severe economic shocks.
Maryia Akulava, Belarusian Economic Research and Outreach Center (BEROC)
This article is a part of a joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC)
WHO: Belarusians are the Heaviest Drinkers in the World
In the middle of May World Health Organisation published a global report on alcohol and health. Belarus, which hardly ever appears at the top of global ratings, this time received a rather sad fame. It took the first place in the world as to alcohol consumption with 17,5 litres of pure alcohol per capita.
The Ministry of Health of Belarus denies these figures, saying WHO used a wrong methodology. But the figures from other Belarus officials that appeared earlier seem to match WHO data.
Alcohol remains a major reason of crime, suicide and health problems in Belarus. The government took some steps to restrict the production, selling and advertisement of alcohol.
It banned low-quality plonk, increased punishment for drunk driving, pushed up alcohol prices and is going to raise the legal drinking age to 21 soon. However, it will need more comprehensive measures to promote healthy lifestyle and education among the citizens.
The Nation of Boozers?
Although the average of 17.5 liters of pure alcohol per capita for Belarus looks already huge, for Belarusian males drink a whole 27.5 litres per capita! Meanwhile, the world average consumption is 6,2 litres. All countries in the top 10 drinkers present Central and Eastern Europe, except Andorra. Moldova took the second place, while Lithuania, the closest country to Belarus historically, was third.
As for the structure of consumed alcohol, spirits appeared most popular among Belarusians (47% of consumption), while beer has 17% and wine only 5%. The rest 30%, the “other” category in the graph most probably means cheap fruit wines (plonk), the favourite beverage of Belarusian alcoholics, and home-made vodka, called samahon.
In Belarus, there are officially 170,000 recorded alcoholics, or 1,8% of the whole population. But as many as 75% of population drink alcohol with varying frequency. During a talk with TUT.by journalists last year, a police official reported that 80% of murders and grave injuries in Belarus are committed under the influence of alcohol. Alcoholism also makes Belarus one of the world’s leaders in suicide. Only 11% of Belarusians completely abstain from alcohol.
Dynamics of Alcohol Consumption in Belarus
Source: WHO, Global status report on alcohol and health 2014.
Belarusian Government Disagrees
Belarusian Ministry of Health denies the figures provided by WHO. It says WHO wrongly counted the coefficient of unregistered alcohol consumption . The chief narcologist of the Ministry Ivan Kanarazaŭ argues that Belarus has an monopoly on alcohol production and administrative liability for home-made vodka production. He also cites the official statistics where the consumption rate is 11.14 litres per capita.
But the problem is Belarusian statistics counts all persons including infants, while WHO counts only 15+ population. According to Kanarazaŭ, the Ministry communicated with WHO on this issue and it agreed that a single methodology for unregistered alcohol consumption does not exist.
However, the officials of another public health organisation give similar to WHO figures. According to Siarhei Asipčyk, deputy director of Republican Centre for Mental Health, in 2012 the level of consumption per capita including the unregistered alcohol reached 22 litres. According to the estimates of Belarusian experts, the social and economic expenses of alcoholism make 7,2% of the GDP, while the income from alcohol trade accounts for only 1% of GDP.
Currently, Belarus is implementing a national anti-alcohol programme that is scheduled to run from 2011-2015. It uses a number of tools that seem to help to reduce the nation’s overall consumption and the culture of drinking.
Since 1 January 2013 Belarus has banned the production of plonk, one of the most harmful alcoholic beverages available, a drink that is very popular among society’s less privileged. It is cheap and quite strong in comparison to regular grape wines. Earlier experiments in several regions proved that the ban of plonk helped to reduce alcohol-related crime and death rates. As positive a step in the right direction in combating alcoholism, the ban on plonk has come too late – it has already taken the lives of thousands of Belarusians over its two decades of independence.
Belarus also strengthened the law against drunk driving with its latest iteration coming into power on 24 October 2013. A driver now mus tpay a $750-1,500 fine for the first offence and should they be a repeat offender, their car will be confiscated by the authorities, learn more here. The government also restricted the public advertisement of alcohol. One would be hard pressed to find it on the streets of Belarus and the media is allowed to show alcohol advertising only at certaim times of the day.
Almost at the same time as the WHO report appeared, the Ministry of the Interior announced that they are preparing a bill which will raise the legal drinking age to 21 (it is currently 18). The law may be introduced as soon as 2015. It will also restrict the time at which alcohol can be sold to 9 am to 10 pm.
Last, but not least, over recently the prices for alcohol have considerably grown, thanks in part to Eurasian integration, and now half a litre of vodka costs $6-7 – twice as much as a few years before. According to the authorities, all these policies have brought about a positive impact on Belarusian society – for instance, the number of alcohol-related crimes decreased 11% in 2012-2013.
LTPs – the Soviet Heritage
Belarus along with Turkmenistan remain the only former Soviet country to preserve the system of sanatorium labour centres (LTP in Russian abbreviation). The centres emerged in the USSR as the places for treating alcoholics with forced labour. In modern Belarus a court can send a person to LTP if they have committed several offences over the year under the influence of alcohol.
The patients typically are forced to do woodwork or labour with metal. They also receive an opportunity to study and receive something akin to a license to work in these fields. The patients are paid a salary, but they can only spend it at a local shop that has no alcohol or, alternatively, they can save up the money they have earned and spend it after they have left the sanatorium.
Speaking before the parliament on 14 May, the Minister of the Interior Ihar Šunievič said that “it would be great to reduce the number of LTPs in the country but the current situation shows that such measures are not reasonable”.
When asked about the number of LTPs in Belarus, he refused to reveal the figures, just saying that “there are a lot of them”. According to information that was previously available from media sources, today there are around 5000 people working in LTPs in Belarus.
The War Must Go On
Despite some effective policies and positive changes in recent years, Belarusians remains among the world’s heaviest drinkers as the WHO data shows. One can still buy alcohol in any store within a stone’s throw. While people are drinking less heavily, they are still harming their health. Many people see alcohol as the only means available to them to relax and be recreational.
The idea of a healthy lifestyle remains unpopular among Belarusians, especially for older generations and village dwellers. Apparently, many people also feel alienated in Belarus because of the very low level of permissible public activity. Needless to say, but in addition to all of this, alcohol remains a profitable business for the state and it has its own influential lobbyists who are actively a work promoting their interests.
There is a widespread opinion among Belarusians that the authorities do not want to deploy a real war against alcohol, since drunk people are easier to manipulate. On the contrary, however, law enforcement bodies like the police and the public prosecutor’s office (the proverbial basement of Lukashenka’s regime), appear to be the most active advocates of the war on alcohol.
The government needs to undertake further steps towards promoting a healthy lifestyle and creating the infrastructure to support it, through developing an anti-alcohol educational programme and accessible healthcare in local communities. Still, some positive trends can be observed with regards to the public’s attitude towards healthy living have started to surface. More and more young people are exchanged in bike riding, jogging and other healthy activities in the nation’s cities, while only a few years ago you would be hard pressed to find anyone engaged in this kind of active lifestyle.