Belarus-Russia relations Belarusian language Belarusian military travel to Belarus
Why Support Belarus Digest?

Stabilisation of Inflation and the Potassium Conflict – Digest of Belarus Economy

In August and September, the general public's attention was focused on the dispute between Belaruskali and Uralkali, the world's two largest producers of potash fertilisers. The conflict between two economic entities created additional difficulties for the Belarusian potash industry, as well as...


In August and September, the general public’s attention was focused on the dispute between Belaruskali and Uralkali, the world’s two largest producers of potash fertilisers. The conflict between two economic entities created additional difficulties for the Belarusian potash industry, as well as stimulated lower prices on the global potash market.

At the same time, positive trends occurred on the foreign exchange market domestically among Belarusians as the demand for foreign currency decreased. The end of the holiday season and the growth of deposit interest rates helped to reduce demand. The suspension of consumer price growth is also a positive factor.

<--break->Improvement of the foreign exchange market dynamics

There were positive developments in the foreign exchange market locally in August. During the summer period the increase in net demand of foreign currency from citizens was the main problem in this segment of the foreign exchange market. While in April-May the population sold on a net basis about $194m, in June-July 2013 net demand amounted to $886.6m. These fluctuations were the result of several factors.

First of all, fluctuations in the Belarusian ruble increased in June and July. On the one hand, the smooth nominal devaluation of the exchange rate of the national currency is a natural process under the conditions of the moderate rate of inflation in any country. However, even a relatively weak depreciation contributed to the growth in demand for foreign currency by citizens that was caused by a very low degree of confidence in the national currency.

The holiday season was also a stimulating growth factor in the demand for foreign currency. People are more actively go abroad during summer which directly leads to an increase in personal expenditures in foreign currencies. Finally, another important growth factor of purchasing foreign currency was an interest rate decline on ruble deposits in May-June.

The decreasing attractiveness of bank deposits in Belarusian rubles in the context of strengthening fluctuations of the Belarusian ruble against foreign currencies helped to stimulate people to transfer part of their ruble savings into foreign currency savings. As a result, in July, there was a reduction in citizens’ deposits in Belarusian rubles by 7 per cent, while foreign currency deposits increased by 4.4 per cent.

The situation improved in August. Although the demand for foreign currency by the population still exceeded supply, its volume significantly decreased. Net demand came to $167m in August. The positive dynamics are due to the end of the holiday season and to the increasing attractiveness of deposits in Belarusian rubles through some growth rates on ruble deposits. In addition, the slowdown in real income growth influenced the dynamics of demand. It is expected that this positive trend will continue in the currency arena.

Ambiguous Situation in Chemical Industry

One of the commanding positions in the nation’s industrial production belongs to the chemical industry. JSC Belaruskali – one of the world’s largest producers and suppliers of potash fertilisers is one such example. Belaruskali is a GDP-bolstering enterprise and overall it is the largest exporter in Belarus.

Starting this year, the chemical industry experienced several difficulties. Thus, the volume of industrial production in January-July 2013, when compared to the same period in 2012, decreased by 26.5 per cent. One of the reasons for this decline was a drop in potash fertiliser prices in foreign markets.

The collapse of the union of Belaruskali and Uralkali contributed to a further reduction in the industry’s prices. Since the beginning of the conflict between the two companies supply prices of potash fertilisers on the world market have already declined by 15-20 per cent, which will undoubtedly affect the future results of the Belarusian potash producer.

The need for the rapid development of its own retail network is an additional problem for Belaruskali. In the aftermath of the termination of the joint trade agreement between Belaruskali and Uralkali, known as the joint stock company Belarusian Potash Company, the Belarusian potash producer has to build a goods-producing network independently.

The company is trying to get out unscathed of this difficult situation. So, ​​a decision to create a new trader Belaruskali – JSC Belarusian Potash Company has been already made. A presidential decree has also removed the levy on export duties from 1 September 2013 to 31 December 2013 to ensure that Belaruskali stablility with its operations. The duty was €75-85 per ton of potash fertilizers. The amount of the fee depended on the country of destination.

These measures will undoubtedly contribute to an improvement in the company’s work and its competitiveness. At the same time, the undeveloped goods/production network and ambiguous situation with the price of potash fertilizer remain the main challenge in the short term for Belaruskali.

Slowdown in Inflation

The limitation of price increases remains one of the priorities for economic policy. Here should be mentioned a record decline of inflation occurred in August. In the reporting month in relation to July 2013 consumer prices were up by 0.1per cent only. Slowdown in inflation is partially due to seasonal factors. Traditionally, there is a decrease in prices for fruits and vegetables in summer, which undoubtedly influences the overall dynamics of prices. Indeed, food prices in August fell by 0.6 per cent mainly due to lower prices for fruits, vegetables and potatoes.

Base consumer price index, which excludes changes in prices for individual goods and services regulated by the state, as well as seasonal goods, grew by 100.8 per cent over a month. In August 2012 this figure amounted 101.7 per cent. Thus, even taking into account seasonal factors, the rate of inflation in the country in August compared with the same period of last year, slowed down.

The prices for services increased most rapidly in the post-crisis period. Increase in prices for services amounted to 119.2 per cent during eight months of 2013. One of the reasons for the rapid growth is a gradual increase in state prices for utility services and public transport. Compensation of costs associated with these services have remained at a low level in Belarus.

Anastasiya Luzgina, Belarusian Economic and Outreach Center (BEROC)

This article is a part of joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC)

239 reads