The balance of payments of Belarus: the deficit is dissolved in the oil

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Платежный баланс Беларуси: дефицит растворился в нефти

The national Bank published payment balance of Belarus in 2018. Open it you wouldn’t believe. At the end of last year, the deficit on the current account, which is the cause of many troubles in Belarus, has almost disappeared. How is that possible?

To understand the situation a little theory. The balance of payments represents the ratio of cash payments coming into the country from abroad, and all payments abroad. The current account of the balance of payments includes foreign trade in economic values. Under current operations refers to transactions of goods, services and income.

The balance of payments deficit on current account means that the country needs to find sources to Finance it is to borrow, sell assets.

Sometimes a current account deficit of the state are struggling with the devaluation reduces the exchange rate of the national currency, to thereby increase price competitiveness of exports and to reduce imports (due to the rise in its price).

This was not long ago

For Belarus for many years been characterized by a high deficit in the current account balance. The last time the current account of the balance of payments was positive in 2005. In subsequent years (because of rising energy prices, Russia’s demands share of oil revenues, stimulating domestic demand) deficit in the balance of payments of Belarus was very significant.

So, 2007-2014 current account deficit exceeded 5% and even 10% (!) GDP. In 2015-2016, when the authorities started to restrict the money supply and ensure price stability, the current account deficit decreased to 3.8% and 3.5% of GDP, respectively, but remained significant.

A large current account deficit, the authorities had to Finance, including through loans. If in 2006 the foreign debt of Belarus amounted to 2.6% of GDP in early 2017 28.4% of GDP. The same figure, according to the Finance Ministry, was formed on January 1, 2019.

Stabilization of the level of external debt of Belarus in 2017-2018 occurred against the backdrop of the improvement in the balance of payments. In 2017 the deficit on the current account of the balance of payments was equal to 1.7% of GDP, and by the end of 2018 — a mere 0.4% of GDP.

Such a good result in the balance of payments of Belarus is not known since 2005. So the deficit is managed to minimize?

As reported by the national Bank in the commentary to the balance of payments, “reducing the size of the deficit on the current account occurred due to the growth of positive balance of foreign trade in services and secondary income.”

As for services, it’s simple. Beyond 2018, the positive balance of foreign trade in services grew by 9.3% compared with the 2017 year to 3.3 billion dollars. Such positive dynamics became possible thanks to increase in exports of computer services. By the way, the positive balance of foreign trade in services helped in 2018 to cover the negative balance of foreign traded goods ($2.7 billion).

Oil revenues

As for the increase in the positive balance of secondary income requires a separate explanation. On this article are reflected, including operations with the transfer of duties. Up to 2010 this article virtually no serious threads, but then the situation changed.

In 2011-2014 Belarus had to pay duty on export of petroleum products to the Russian budget. Accordingly, during this period of operations balance on secondary income was negative for Belarus.

After the signing of the EEU Treaty Belarus from 2015 began to enroll in its budget export duties on petroleum products produced from Russian oil.

Accordingly, in 2015-2016, the negative balance of secondary income disappeared. And in April 2017, the presidents of Belarus and Russia have agreed on “perenoske” oil — the mechanism of compensation of the Belarus high gas prices, and since the second half of 2017 the volume of secondary income Belarus received from Russia, began expanding.

So, in 2017 the secondary income of the public administration of Belarus received from Russia amounted to 1.18 billion dollars and increased by almost half compared with 2016.

In 2018, when the state budget was enlisted duty from 6 million tons of Russian oil, the secondary income of the state, received from Russia, compared to 2017 and increased by 38.2% to 1.64 billion dollars.

Use oil scheme has allowed not only to increase budget revenues, but, as you can see, significantly improve the balance of payments.

The deficit will once again grow?

The absence of current account deficit (or minimum value) is the best situation that do not require additional borrowing or sale of assets. Does not appear in this case and prerequisites for the devaluation.

Meanwhile, experts suggest that the current account deficit of the balance of payments of Belarus may again begin to grow.

Платежный баланс Беларуси: дефицит растворился в нефтиThe prospect of increasing the deficit in the current account balance is real, the reasons for such developments are observed, says the scientific Director of the IPM Research center Irina Tochitskaya.

“A tax maneuver in the oil industry stimulates the growth of incoming crude oil prices, resulting in an increase in imports. It is unclear how this situation will be the competitiveness of Belarusian oil refineries. Thus, a significant portion of foreign exchange earnings coming into the country, was called into question”, — says Irina Tochitskaya.

Платежный баланс Беларуси: дефицит растворился в нефтиSenior analyst “Alpari” Vadim Iosub also believes that the deterioration in the balance of payments is possible.

“We can continue to grow services exports, but the losses associated with the impact of the tax maneuver on the balance of payments, it does not compensate for. Therefore, the risk of increasing deficit in the current account balance is obvious”, — says Vadim Iosub.

If this happens, the authorities will seek new borrowings, said Irina Tochitskaya.

“To minimize the size of such loans, you can expect certain steps to reduce costs and increase revenues. In particular, by reducing tax breaks. It, probably, will allow to involve additional resources in the budget and, perhaps, to compensate for the loss due to the tax maneuver,” — says Irina Tochitskaya.

The experts do not expect that the government will use FX policy to address potential problems in the balance of payments.

“Debt and corporate debt are largely denominated in foreign currency. Accordingly, the weakening of the national currency automatically leads to an increase in the debt burden on the state and enterprises. It is therefore unlikely that the authorities would use devaluation to address potential problems in the balance of payments”, — says Vadim Iosub.

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