Measures of Response
In the face of external challenges Belarus remains committed to its economic policy priorities
At the end of 2014 Belarus had to deal with serious challenges coming from abroad. Market slump and steep devaluation of the national currencies of Belarus’ main trading partners, plunging prices for oil and oil products, and the escalation of the Ukraine conflict prompted the Belarusian Government to look for new growth points and new solutions to improve the economic regulation system. To confront external shocks, the Government came up with an action program for 2015. Taking part in the elaboration of the document were MPs and the business community. In the face of mounting external challenges, the focus was made on maintaining macroeconomic and social stability and creating the foundation for the further economic growth.
In 2015 the Belarusian Government will keep its focus on implementing an efficient macroeconomic and monetary policy, upgrading the economic regulation system, boosting competition, promoting small and medium-sized entrepreneurship, expanding and diversifying exports, ramping up integration within the framework of the Eurasian Economic Union and elaborating the social and economic development program for the period of 2016-2020.
“The key points of the program are based on the tasks the President put forward while appointing governmentmembers,i.e.diversifying exports, maintaining stable operation of industrial enterprises, reducing warehouse stocks and external accounts receivable, and curbing inflation,” Belarusian Prime Minister Andrei Kobyakov said when presenting the program at the House of Representatives.
The 2015 program is different from similar documents in a number of ways. For example, it envisages personal responsibility of heads of ministries and concerns for the implementation of sectoral policies, and also a bigger role of ministers, oblast governors and company heads in decision-making and de-bureaucratization.
Another distinctive feature of the program is a small number of quantitative parameters. The Government explained that amidst global uncertainties the country should be able to respond to changes in a fast and flexible way.
“This program rejects micromanagement. The program is not about figures and reports, but about results, quality and efficiency. Everyone should be able to make decisions fast, to operate in a profitable and cost-effective way, to expand and diversify exports. The common strategy was outlined by the President and the details
were specified by the government action program,” Andrei Kobyakov underlined.
The Government is guided by the country’s major economic documents – the social and economic development program and the budget. The action program allows for market fluctuations and offers several economic development scenarios depending on the changes in oil prices and the exchange rate of the Russian ruble. These parameters have a great impact on budget revenues, the efficiency of the petrochemical industry and the demand for Belarus-made products on the Russian market. Response actions and economic balancing measures have been elaborated for each of the scenarios.
The first scenario (60/60) expects the annual average oil price to be $60 per barrel in 2015, with the exchange rate of the Russian ruble at RUB60 per $1. The second scenario (50/62) relies on calculations of the Russian Federation’s basic scenario and expects the annual average price for oil at $50 per barrel, with the exchange rate of the Russian ruble at RUB61.5 per $1. The third scenario (40/80) is a stress one. It expects oil to cost $40 per barrel, with the annual average exchange rate of the Russian ruble at RUB80 per $1.
The second scenario (50/62) was adopted as the basic one for 2015. Belarus and Russia united efforts to align estimates and forecasts and to optimize the industrial and export policies. Kazakhstan adopted similar oil price projections.
“This scenario is conservative. In other words, it is worse than the current expectations of experts regarding external conditions of the economy development. This way it allows creating some safety reserves in the event of the deterioration of the global economy,” the program developers explained.
The budget policy is based on the budget surplus that will be big enough for the unconditional and timely fulfillment of the country’s debt commitments. The efficiency of the budgetary spending will be increased. The Government is convinced that the country should rely on its own resources. At the same time financial resources coming from abroad will open up additional opportunities.
It is important that despite all the challenges, the Government is not going to give up on its social commitments. The program contains a number of sections on social security, household income and employment. These provisions are aimed at preserving and strengthening the human potential.
“In the event of the most unexpected and extraordinary developments, people working in the public sector will get their salaries on time,” the Prime Minister assured.
If the situation follows the 60/60 scenario, in other words, if the average annual oil prices make up $60 per barrel with the exchange rate of the Russian ruble at RUB60 per $1, it may be possible to ease the economic policy in H2 2015.
Key Areas of Focus
Instruments of monetary, fiscal, pricing and antimonopoly policy will be used to achieve the macroeconomic balance in 2015. The monetary and fiscal policy will remain tough while the exchange rate policy flexible.
The foreign exchange market will be developing solely on market principles, and compensatory measures will be used to smooth things over for the real economy. The Government faces difficult tasks of de-dollarizing the national economy and increasing the trust in the national currency, saturating the consumer market with goods and services at affordable prices and keeping the inflation below 10% in 2016-2020.
“By curbing inflation expectations and de-dollarizing the economy, we will be able to cut down interest rates. Secondly, it will stimulate savings in the national currency and, thirdly, it will serve as a catalyst for investment activity,” Prime Minister Andrei Kobyakov said explaining the Government’s attention to these aspects of the economic policy.
Belarus started working on expanding the use of the national currency at the end of 2014. The Government and the National Bank are implementing a set of measures to limit payments in foreign currency in Belarus, and to unpeg the national currency from the U.S. dollar or the euro when determining prices, rent rates, customs duties and other payments.
With regard to the inflation, the program aims to prevent any price speculation. The Government will act proactively gradually replacing administrative restrictions with
measures of additional regulation and promoting competition. Prices on the consumer market will be monitored. Product interventions will be used to balance out the supply and demand to avoid price hikes. Prompt antimonopoly investigations will help prevent price fixings on certain commodities.
The main objective of the economic policy in 2015 is to build up exports by redirecting trade flows to new promising markets while maintaining the presence on traditional ones. The export to industrial production ratio should be no less than 65% at the macrolevel.
The Government has been expanding support mechanisms for exporters, embracing advanced trade finance solutions, and establishing closer cooperation with leasing and insurance companies. Settling the problem of foreign accounts receivable, improving the efficiency of commodity distribution networks, including warranty and postwarranty service, are seen by the Government as significant revenue opportunities to be tapped in 2015. Considerable relaxation of the customs administration is also in the plans. Work will be continued on the removal of tariff and non-tariff barriers to mutual trade between the member states of the Eurasian Economic Union.
Government members will be put in charge of promoting cooperation with certain countries and regions. Together with the MPs they will be working to advance the country’s economic interests and to explore new markets.
“We do not aim to take over the functions of business here. We aim to help businessmen at the political level, which is very important when you advance to a new market,” Andrei Kobyakov said.
The Government of Belarus is set to make an efficient use of the advantages of regional and global integration. For example, the program provides for the expansion of economic cooperation with the European Union, participation in the Silk Road Economic Belt project initiated by China. However, priority will be given to the development of economic integration within the framework of the Eurasian Economic Union, the Union State of Belarus and Russia, and the countries of the CIS.
“Together with the Russian Government we have developed an action plan to deepen economic and trade cooperation. We are set to ease the access to our markets for a wide range of goods. We have also developed a mechanism of interaction in pursuing the common industrial and financial policies,” the Belarusian head of government said.
The Government keeps an eye on the financial and economic standing of enterprises of the real economy, which is suffering from the impact of the external shocks and tight macroeconomic policy.
According to the Economy Ministry, measures are being taken to help domestic enterprises to adapt to the sudden changes in the external economic environment while ensuring the priorities
Belarus’ Government and the National Bank are implementing a set of measures to limit payments in foreign currency in Belarus, and to unpeg the national currency from the U.S. dollar or the euro when determining prices, rent rates, customs duties
and other payments
outlined by the head of state for the Government.
TheNationalBankandfinancial institutions set up a so-called “club of creditors” to refinance and, if necessary, restructure the debts of the country’s largest companies. The industrial complex was allowed to sell products at prices below production costs, not to include depreciation expenses into product prices. Solely market measures will be used to support the competitiveness of enterprises.
“A new paradigm is being implemented now. It provides that companies that cannot sell their products and reduce accounts receivable will not be able to take out new loans. This is a principled approach of the Government to the macroeconomic policy,” Andrei Kobyakov said. “We aim to keep the existing lending volumes, not to increase them. We seek to make the production process more efficient. To put it simply, our efforts will be centered on the measures to reduce costs, to cut down warehouse stocks and bring back foreign exchange earnings stuck abroad,” Andrei Kobyakov added.
Small and medium-sized enterprises ( SMEs) are viewed as one of the main points for economic growth this year. Access to loan resources has been expanded for SMEs through the Development Bank of Belarus. The Bank has put aside Br700 billion for these purposes in 2015. SMEs will participate in sectoral and regional economic programs, public procurement contracts and distribution of raw materials by tender.
The Belarusian Fund of Financial Support to Entrepreneurs is expected to set up a SMEs promotion company in cooperation with the World Bank. The company will create a guarantee fund for opening new businesses. Besides, there are plans to set up an institute to assess the impact of draft regulatory acts on business. Public advisory councils will have a bigger say in legislative efforts and discussion of issues facing the business community.
The program stipulates a number of measures to streamline the use of investments and public funds. A decree will be drafted to introduce a new distribution system for public funds, cancel the declarative principle in compiling government programs and create equal access to subsidies to offset the money spent on investment projects.
Preferential lending limits coordinated with the National Bank will remain unchanged. Investment resources will be allocated, first of all, towards the substantially complete projects and also projects to manufacture products that will be competitive on foreign markets. Loans for new investment projects implemented as part of government programs will be allocated on a competitive basis solely by the Development Bank of Belarus. The Government is confident that money should be invested in the most efficient projects. The Government also plans to secure equal access to government support programs for companies of all forms of ownership.
“We advocate equal access, competition for access and sectoral preferences,” First Vice Premier Vasily Matyushevsky said. “Either state-run or private, these companies are Belarusian. They pay taxes and create jobs. We need to be guided by a cost-benefit principle here,” he noted.
The law on public-private partnership, which is expected to be passed in Belarus this year, will be an important step in improving the country’s investment climate. According to the Economy Ministry, the document will facilitate the implementation of new socially important projects through innovative technologies and business participation in funding the public sector. The law will also enhance the efficiency of state property management.
The program identifies the actions aimed, first of all, at enhancing the economic planning and management system. They include a draft law on the government indicative planning and forecasting of social and economic development of Belarus. The document can be passed by the Belarusian Parliament in autumn.
Indicative planning means no mandatory output requirements. Forecasts will define economic priorities and guidelines for companies, sectors and regions. The planning system will include adjustment and monitoring regulations. Belarus’ partners in the Single Economic Space chose indicative planning over directive planning a long time ago.
Separating the functions of the state as a regulator and an owner is considered a novel concept. Government bodies will be exempted from the day-to-day management of subordinate companies. Instead, they will supervise the development of sectoral strategies, the delivery of targets set out in the programs and the HR policy.
Belarus’ public property management concept through 2020 is set to enhance public property management efficiency in the country. Voluntary incorporation into holding companies is expected for companies released from departmental control. New regulatory acts will allow companies with a state share to hire professional managers in the capacity of government representatives and independent directors.
The social block of the program envisages actions to promote education and healthcare, increase household income and employment opportunities and also measures to improve the social security system.
In particular, the program is set to balance out the increase in real income with the growth of the gross domestic product and labor productivity. The Government is determined to resolve the free-rider issue. A number of measures are envisaged to help the unemployed with finding a job. The draft decree on the measures to prevent social parasitism is considered one of the key measures of the program. The document will focus on “encouraging able-bodied people to work, enforcing the constitutional obligation of citizens to participate in the financing of public expenditures,” reads the government action program.
As for pension coverage, Belarus plans to conclude international agreements with the EEU states and other countries to involve them in the financing of pensions for the length of service acquired in their territories. The country will also support the most vulnerable social groups and people going through hard times.
The country’s social policy will stay focused on supporting families with children. The main innovations of 2015 aimed at stimulating the birth of second and subsequent children provide for a $10,000 family capital bonus and a new type of child allowance. The family capital can be used to improve housing conditions, pay for education or other services, including social and healthcare services, or be deposited to a pension account.
Thus, the 2015 program encompasses the main areas of focus including domestic economy, foreign economy, investments, structural policy, entrepreneurship development, and sectoral policy. Other sections of the program are dedicated to the regional policy, preservation and enhancement of human potential. Every section specifies concrete goals, tasks, implementation mechanisms and executives responsible.
All sections of the program are aimed at ensuring economic balance in 2015 and robust economic growth in the next five-year period. The general economic section is focused on the improvement of macro-planning, new approaches to the elaboration of government programs and support initiatives, development of public-private partnership, optimization of corporate management, and giving an impetus to the development of small and medium-sized manufacturing businesses.
The document includes many pending legal acts and mechanisms as well as fresh ideas regarding the balanced development of the economy. Meanwhile, the state economic policy priorities will remain the same. These are mainly the development of human potential, stimulation of business initiatives and entrepreneurship, substantial foreign trade growth, balanced development of regions, comfortable and affordable housing and food security.
In 2015 Belarus will be working to build up export by redirecting trade flows to new promising markets while maintaining the presence on traditional ones
The Government will rely on such principles as creativity, equality of all forms of ownership, noninterference in fair competition, openness in the preparation of strategic documents, division of functions of an owner and a regulator in the operation of companies with the state share in the authorized capital.
“The President gave a clearcut instruction to the Government to preserve what we have in the difficult time of crisis. To fulfill this goal, it is essential to consolidate efforts of all branches of power and the entire society,” Belarusian Prime Minister Andrei Kobyakov stressed.
It is expected that the industries which have been recently overhauled using huge investments, particularly, wood processing, agribusiness and the construction industry, will be the driving forces of the economy. Thus, the upgrade of wood processing companies will be finished this year.Nine companies will reach the estimated capacity. Svetlogorsk Pulp and Cardboard Mill will launch a new facility to produce bleached pulp.
“The main objective is to guarantee efficient operation of our companies, good sales of the products we make, and to get profit. It is not easy to work on foreign markets. The situation has changed since we started implementing certain upgrade projects, but still our modernization efforts can be a success,” the Belarusian head of government said.
Among the Government’s midterm priorities in 2015 will be the development of the Social and Economic Development Program of the Republic of Belarus for 2016-2020. Plans have been made to work out strategies and concepts to support and promote export, raise foreign direct investments, improve the state property management, promote entrepreneurship, information technology, youth policy, services sectorandeducation.TheGovernment will draft programs to facilitate social integration of disabled and elderly people, popularize physical education and sport, and enhance demographic security.
Apart from that, the government action program envisages the development of more than ten draft laws of paramount importance. These include a draft law on publicprivate partnership, state indicative planning and forecasting of the country’s social and economic development, a draft law on selfregulating organizations, a revised version of the anti-corruption bill.
On the whole, during the spring session the Parliament is to consider over 50 draft laws. Moreover, the agenda will be expanded, Chairman of the House of Representatives of the National Assembly of Belarus Vladimir Andreichenko said as he presented the government action program to the MPs. “We have created an efficient mechanism of interaction between the MPs and the Government which is extremely important right now,” he noted.
“Our main objective is to mobilize the society to implement the tasks set by the head of state regarding the dynamicandsustainabledevelopment of the country. There should be one criterion of the efficiency of government actions, which is peace, stability and high living standards,” Vladimir Andreichenko stressed.