Fi­nan­cial Bal­ance

The ex­e­cu­tion of Be­larus’ bud­get will be deficit-free at all lev­els in 2012

Economy of Belarus - - CONTENTS - Ta­tiana VLASOVETS

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.

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