The execution of Belarus’ budget will be deficit-free at all levels in 2012
The execution of Belarus’ budget will be deficit-free at all levels in 2012
Mr Kharkovets, what are the highlights of Belarus’ budget policy this year? What are the major objectives of the public finances now?
The number one task in 2012 is achieving macroeconomic stability and creating an environment conducive to sustainable economic growth. The fiscal system can help make it happen by means of additional tax incentives.
The priority of the budget policy this year is deficit-free execution of the budget, higher efficiency of public spending, and an increase in investments using tax administration mechanisms.
Thus, the public finances are facing the following challenges:
• To balance budget revenues and spending at all levels;
• To ensure fulfillment of financial obligations of the budget before external and domestic creditors;
• To build up gold and foreign currency reserves of the country by restricting the use of revenues to be received from selling state property in 2012;
• To enhance the investment appeal of Belarus by changing the policy of levying business profits;
• To maintain the quality level of public services and social security of vulnerable groups of people;
• To extend loans for government programs without jeopardizing the macro-financial balance under supervision of the Government.
Smart financial management and planning is crucial for efficient operation of any company and financial well-being of any person. At the macroeconomic level the main financial plan of the country is a kind of a lever stimulating economic growth. Naturally, the robust growth of the national economy will require adequate budget financing. Finance Minister of Belarus Andrei KHARKOVETS tells the Economy of Belarus Magazine about the budget revenues and spending in 2012.
I would like to note that all these tasks will have to be fulfilled against the backdrop of increasing spending on servicing and repaying the public debt, on subsidizing interest rates in the economy. This will have a serious impact on the fiscal system and will require most stringent discipline. What is the consolidated budget of Belarus, its revenues and expenses structure? How big is it in comparison with the last year’s budget? Will the revenues and expenses structure change this year?
The budget is based on the forecasted parameters of economic development of the Republic of Belarus in 2012. The budget policy is aimed at ensuring macro financial balance and reaching the financial security parameters stipulated by the program of the socioeconomic development of the Republic of Belarus in 2011-2015. When forecasting the revenues of the consolidated budget we considered the necessity of the continuous tax burden reduction.
The revenues are estimated at Br141.8 trillion, which is 65.5% more than in 2011. Excluding this year’s inflation, the revenues are more or less at the same level as 2011 budget revenues. As for the GDP ratio, the revenues will be 3.4 percentage points lower than last year at 27.8%.
The revenues structure will remain the same. VAT will account for the greatest share of the rev- enues (33.2%), revenues derived from the foreign economic activities will account for 17.9%, income tax – 10.8%, profit tax – 10%, excise taxes and property taxes will account for 8% and 2% respectively.
In accordance with the economic policy 2012, no deficit is forecasted in this year’s budget as the state has sufficient resources for implementing its social and financial commitments.
The expenses are forecasted at Br141.8 trillion, which is 79.3% more than in 2011 in nominal terms based on 9% inflation. This year the budget expenses will account for 27.8% of the GDP while last year they accounted for 28.8%.
Speaking about the differences between expenses of the two budgets, they are as follows.
First of all, in 2012 a significantly greater amount of expenses will be channeled into repaying and servicing the state and local debts, as well as subsidies of interest rates of the loans issued for the state programs implementation.
Second, this year real wages in the public sector are forecasted to grow by 5% in correlation with the labor productivity growth. The main task here is to bring the wages in the public sector in line with the wages in other economic sectors.
Third, the budget 2012 envisages certain budget restrictions of public organizations and focuses on reaching the main targets. This year’s budget also has reduced current economic subsidies, streamlined budget investments and clear regulation of state programs crediting sources.
Reduction of the budget assistance of the economy, slowing down of state programs crediting will be accompanied by the development of securities market instruments and creating favorable environment for companies to look for resources on their own.
The main priorities of the state budget policy for this year are healthcare, education and science. The increase in funding of these sectors is much greater than increases in funding for other sectors. This is the fourth thing that distinguishes this year’s budget.
Adequate social support of people deserves special regard. Of course, the best way of support lies in the sustainable growth of real incomes of people. Resources for this increase are built into the budget. Moreover, we take into account the resources needed to support the categories of people who are unable to earn income by their own.
In recent years social orientation of Belarus’ budget became its distinctive feature. What is the volume of financing of important social projects in 2012?
This year as in the previous years the budget will stay sociallyoriented.
Some Br23.8 trillion from the consolidated budget, or 4.7% of GDP, will be funneled into education. Such financing will help meet national social standards in education, maintain a high level of education services, consolidate the material and technical basis of educational establishments, and implement national educational programs.
Besides standard costs of universities, the national program of higher education development for 2011-2015 stipulates that Br159 billion will be spent on the improvement of the material and technical basis of universities. It is for the first time since the establishment of industry-specialized research laboratories in leading universities that innovation funds of Belarusian government bodies will provide Br64.5 billion to fit them with modern equipment and computers.
On the whole, budget expenses on higher and post-graduate education will increase by 87.4%, from Br1.7 trillion to Br3.2 trillion.
We are planning to allocate Br18.2 trillion, or 3.6% of GDP, for healthcare purposes. This figure will increase 1.8 times over 2011. Some Br14.3 trillion (80%) will be used to support over 2,000 local healthcare institutions.
Special attention is drawn to the financing of national healthcare programs. These include the national program of prevention, diagnostics, and treatment of cancer for 2010-2014 worth Br192 billion, the national program “Cardiology” worth Br193 billion, the national program of demographic security of the Republic of Belarus worth Br106 billion, etc.
Budget expenses on social policy will make up Br12.9 trillion, or 2.5% of GDP.
As for the preferential loans on housing construction, some Br4,550 billion from the national budget will be used to cover losses of Belarusbank and Belagroprombank. This figure will increase by 69.3% as against 2011.
A considerable part of government support in housing construction will be financed out of local budgets in order to solve the housing problem at the local level.
Are you planning to change the Belarusian budget sphere?
An ample part of the budget is traditionally used to finance the public sector. Therefore the Finance Ministry pays special attention to the effective use of funds.
At the same time budget opportunities in financing the public sector are narrowing. It is directly connected with a necessity to reduce tax burden on the economy, earmark budgetary funds to support the national economy and service the foreign and internal public debts.
With financial resources limited, the structure of budget expenditure on the public sector is tilted in favor of financing current expenses. Thus budget investment is reducing, which hinders the development of the sector. The public sector needs extensive changes to switch into new budget allocation mechanisms.
Sustainable development of the public sector as well as of commercial organizations is impossible without reforms.
Budget investment efficiency might be enhanced by means of changing financing schemes for budgetary organizations, searching for optimal instruments to encourage expenditure cuts in these organizations, and optimizing their network.
In our opinion, this reform should cover three main areas.
First, it is a switchover to the result-oriented budgeting. Some market competition elements will be introduced into the public sector. The budget will pay for the services the organization provides instead of financing its maintenance costs.
Such changes are impossible without adjustments in the organizational-legal forms of state-financed
organizations. They need a thorough inventory in order to define which of them need the budget support and which might be funded from other sources (own or raised resources). This is the second important task.
And, finally, the third one is the use of an audit efficiency principle instead of a standard inspection of the organization’s budget.
We should assess the results the company achieves not how the budgetary money is spent.
Management of the public debt is an integral part of the budgetary process. The recent upward trend in the country’s external debt is expected to remain in place in 2012 as well. What external debt does Belarus expect by the end of the year? How big will be the debt burden on the national budget?
As of 1 February 2012 the external state debt was $11.8 billion as against the maximum limit of $14.3 billion.
In 2012 the country is expected to receive two tranches of the EURASEC Anticrisis Fund loan at the total amount of $0.88 billion. The money will be used to support the mid-term economic action plan developed by the government and the National Bank.
The effort will be continued to raise credit resources for the implementation of investment projects that have already been announced. The construction of the Belarusian nuclear power plant tops the list of projects scheduled for implementation. A total of $650 million will be invested in the construction of the facility in 2012.
In addition, this year we will continue implementing investment projects using loans of Chinese banks. Currently 14 projects totaling $3.46 billion are in progress. The largest of them include the construction of cement plants, new units at the Lukoml and Bereza state district power plants, Vitebsk CHPP, a plant to manufacture sulphate bleached cellulose at Svetlogorsk Pulp and Board Plant and reconstruction of Zhlobin-gomel section of the M-5/ E271 highway. In addition to the projects mentioned above there are
plans to sign new loan agreements with Chinese banks totaling more than $1.7 billion.
In 2012, Belarus will utilize $1.3 billion of the Chinese loans.
Taking into account the expected amounts of borrowings and principal repayment, the external public debt will increase to $14 billion by the end of 2012.
It should be noted, however, that the government is not simply increasing the debt. This is a deliberate step. The main objective of foreign loans is to implement effective investment projects aimed primarily at improving the competitiveness of the economy and its export potential.
Loans are raised on quite favorable terms. For example, Chinese banks provide loans for 15 years, at not more than 4% per annum, which is significantly cheaper than market borrowings of the Republic of Belarus.
Thus, the external debt of the Republic of Belarus is characterized by stability and low cost maintenance: the average rate for the portfolio is 4.1% per annum; 9.7% of the debt portfolio will mature in the next 12 months.
The debt burden on the budget has increased in recent years. In 2011, the debt payments amounted to $0.6 billion. In 2012, they will amount to $1.6 billion. However, the amount of payments on the public debt is within the parameters of economic security. The external debt service to budget revenue ratio for 2011 amounted to 4.4% in 2011. In 2012 it is estimated to make up 7.7% against the ceiling of 10% envisaged in the socio-economic development program of the Republic of Belarus for 2011-2015.
It should be noted that the loans raised by the government of the Republic of Belarus to implement investment projects are serviced and repaid by the organizations using external government loans that compensate for budget expenditure on repayment and servicing of such loans, thus reducing the debt burden on the budget. For example, in 2011, such proceeds accounted for 8.5% of the total payments to repay and service the external public debt and will continue to increase in the future.
Considering the international practice, how big is the “burden” of the external state debt of our country?
There is no uniform parameter of a safe level of public external debt for all countries. Thus, the Treaty on the European Union stipulates that the public debt in the EU member country should not exceed 60% of GDP. The figure within EURASEC is set at 80% of GDP. The agreement on harmonized macroeconomic policy in the Customs Union between the Republic of Belarus, the Republic of Kazakhstan and the Russian Federation has this figure at 50% of GDP.
The Republic of Belarus has stricter requirements to the level of public debt. Thus, in accordance with the socio-economic development program for 2011-2015, the ratio of public debt to GDP must not exceed 4%, and the ratio of external debt to GDP 25%. As of 1 January 2012, these figures were 26.8% and 21.6% respectively.
Thus, taking international practice into account, the “burden” of public external debt of the Republic of Belarus is considered moderate.
In 2013-2015 the Republic of Belarus expects a tense schedule of payments on the external public debt payments due to the repayment of the IMF standby loan and the debut Eurobond issue due to mature in 2015. In general, in the next three years Belarus will need to pay approximately $5.5 billion.
The Finance Ministry sees no major problems with the payments for the external debt at peak times. We have enough resources and tools to comfortably survive these periods.