Socioeconomic Development of the Republic of Belarus in 2012
Crisis tendencies of 2011 gave place to the economic recovery in 2012. The reforms initiated in 2011 significantly reduced the imbalances in the economy of the Republic of Belarus and laid the foundation for its further sustainable development.
In 2012, Belarus’ economy entered a state of balanced development which was characterized by the significant reduction in the inflation rate, stabilization and predictability of the Belarusian ruble exchange rate, positive balance of foreign trade, improvement of the balance of payments position and other positive changes. Belarus’ entry into the Single Economic Space also underpinned the national economy.
Socioeconomic development of the Republic of Belarus in 2012 was characterized by a relatively stable economic performance and growth of most macroeconomic indicators compared to those of last year.
In the first 11 months of 2012, the economic growth was moderate at 2 percent. The main goal of external balance – economic growth based on external demand – was achieved. Moderate economic growth was the result of the implementation of measures to contract the domestic demand with the aim to eliminate previous macroeconomic imbalances.
Economic growth in 2012 was outpaced of the growth of labor productivity (in January – October – 102.2% and 104.3%, respectively).
Considerable progress in 2012 was made in the foreign trade. Throughout the year, the growth of exports of goods and services exceeded that of imports (export growth – 116.2%, import growth – 104%).
Balance of foreign trade in goods and services over 10 months of 2012 was positive and amounted to US$ 3.6 billion, making up 7.3% of GDP (that parameter was minus 2.1% of GDP in the same period of 2011year).
Balance of payments significantly improved. Current account of the balance of payments for 9 months of 2012 amounted to minus 0.3% of GDP against minus 9.4% of GDP for the first 9 months of 2011. Overall balance of the balance of payments improved as compared with the same period of 2011 by US$ 0.8 billion.
The year of 2012 saw a further increase in gold and foreign currency reserves. Since the beginning of the year, the reserves increased by US$ 0.3 billion to make up US$ 8.2 billion on December 1, 2012. Accumulated reserves equal 2 months of imports.
Tight monetary and fiscal policy brought about inflation rate reduction – from 104% for 11 months of 2011 to 20.1% for the same period in 2012 (that is, on average, by 1.7% per month).
At that, the inflation rate growth in 2012 was somewhat caused by the need to converge food prices to the level of those in the Russian Federation, to increase tariffs for housing, utilities, and transport services to the population, increase excise taxes on alcohol and tobacco products.
Alongside the decrease in inflation, refinancing rate was gradually reduced by 15 percentage points throughout the year 2012, reaching 30% per annum on September 12, 2012.
It should also be noted that the ongoing reforms in Belarus were acknowledged and appreciated by the leading international rating agencies.
According to the latest reports of these international organizations, Belarus improved its position in such rankings as “Doing Business” – from the 60th to the 58th position out of 185 countries explored (according to the World Bank and the International Finance Corporation (IFC) report “Doing Business - 2013”).
Belarus was named the world’s third best business reformer in the ranking of countries which made significant improvements in conditions of doing business since 2005.
Also, the Standard & Poor’s rating agency improved the projection of long–term sovereign credit ratings of the Republic of Belarus from “negative” to “stable”.
The Government of Belarus has pursued tight fiscal policy over the recent years. Even in the midst of the global crisis in 2009-2010 budget deficit was within 2 percent of GDP. In 2011, owing to robust government action, budget surplus in the amount of 3% of GDP was reached. Budget 2012 is also being implemented with the surplus of 2% of GDP (as of the first 9 months), therefore it is probable that official forecast of the surplus in 2012 in the amount of 0.2 % of GDP may be exceeded.
Main priorities of fiscal policy are sustained macroeconomic stability, as well as balanced budget at all levels.
In doing so, the Government avoids increasing taxes and, on the opposite, takes measures to reduce tax burden.
The following main measures are taken to tighten budgetary policy:
- cost cutting by state-financed organizations;
- restriction of budget capital expenditures;
- reduced support of industrial sector of the economy;
- increase of reimbursement by population of tariffs on housing, utility and transport services;
- restraint of real wage growth.
Budget 2012 does not differ significantly in the structure of receipts and expenditures from the previous years.
Principal sources of budget income are VAT (21%), income tax (9%), profit tax (9%), special excises (5%), and export duties (12%).
Budget expenditures of the Government sector mostly consist of social expenditures, including education – 13%, public health – 10%. Expenditures to service national debt services account for only 4 %.
Salary in the government sector is an important factor affecting domestic demand – its share in the total amount of salaries is about 80%. Controlling the growth of salary is one of the key measures of budget policy.
Belarus assumed commitment before the Anticrisis Fund of the Eurasian Economic Commission to limit wage increase, agreeing that the share of such expenditures in the budgets of 2012 and 2013 will be kept at the level of 2011. This obligation is being fulfilled.
Liberalization of taxation system.
Tax reform has been implemented. Presently, taxation system corresponds to the standards of the developed countries by structure, composition and number of taxes. Sweeping changes are not planned in the near future. Five main taxes are being levied.
Periodicity of payment of taxes and submission of tax returns is brought into line with global standards (instead of monthly tax payment and submission of tax returns it can be done quarterly, and in some cases yearly).
Tax burden on the economy was reduced by 8.7% of GDP over the last four years (from 35.5% in 2007 to 26.8% in 2011). The latest significant change was the reduction, beginning from 2012, of profit tax by 6% from 24% to 18%. As a result taxation system got an additional competitive advantage not only as regards taxation systems of partners in Customs Union and Singly Economic Space, but also of European countries. This enhances Belarus’ investment attractiveness.
Public Sector Debt of the Republic of Belarus
Public sector debt has reached US$ 14.3 billion for the period of 9 months of 2012 that makes up 25.4 percent of GDP. The cap allowed by law is set at 45 percent.
Due to significant slowdown in the growth rate of debt and increase of GDP, the ratio of public debt to GDP compared to the beginning of 2012 came down to 26.8%.
For information: according to the IMF methodology, obligations of local authorities are included into calculation of public debt, under such conditions public debt would account for 26.5% of GDP. If the contingent liabilities of national (7.4 % of GDP) and local governments (5.6 % of GDP) were included, public debt would make up 40.1 % of GDP on October 1, 2012.
External liabilities of the national Government make up about 85% of the total value of public debt.
As of October 1, 2012, foreign debt was US$ 12.2 billion or 21.6% of GDP.
Foreign debt is characterized by the following features:
- lack of short-term credits;
- medium maturity period is about 5 years;
- medium interest rate is lower than 4% per annum;
- risk of refinancing is about 17% of total debt amount (debt matures in the coming 12 months).
An important feature of foreign public debt is an increase in the share of project financing. It is about state attracting export credits in order to grant them to enterprises which are implementing strategic investment projects. As of October 1, 2012, the ratio of such credits in foreign debt accounted for 13.4%. By 2015, the share of such credits would exceed 55%. The main engine of this tendency is construction of the nuclear power plant.
The growth of project financing secured by foreign government loans stimulates the growth of GDP and export. Hence the expected reduction in the ratio of foreign debt to GDP.
Thus public debt will remain at moderate and secure level.
External public debt mainly includes credits of international financial organizations, governments of foreign states and foreign banks, which make up over 80%. These funds ware given to Belarus on beneficial terms.
The main creditor is IMF (residual debt is US$ 3.3 billion), the second is the Russian Government (residual debt is about US$ 3 billion), the third are persond who invested in the three international bond issues of the Republic of Belarus (residual debt about US$ 2 billion).
The currency structure of the external public debt is similar to the structure of the currency earnings. The principal currency of debt is US dollar (68%).
It was expected that US$ 1.6 billion would be attracted in 2012, and
US$ 0.8 billion would be repaid. About half of attracted resources goes for implementation of strategic projects.
The payments for discharge and external public debt service will substantially increase during the next 3 years because of the necessity of repayment the IMF’s stand-by credit and redemption of debut Eurobond in 2015.
At that, the indicator “payments for export” will remain well below the safety cap allowed by law (10%).
The Government has the set of sources and mechanisms to pay off the entire amount needed to finance payments of external public debt. These are increase of foreign trade surplus, attracting direct foreign investments, privatization, government currency reserves and refinancing of debt.
Debt policy of the Government raises no concerns of our main creditor, the IMF.
One can conclude that the macroeconomic conditions set in 2012 laid the foundation for sustainable economic development of Belarus in the coming years. However, despite the progress made since the end of 2011, the stabilization process is yet to be completed. Sustainable balanced economic development will be conditional on the continuation of prudent monetary and fiscal policies.