World Bank Alex Kremer during mediasentry “Reforms in 100 billion,” organized by the Research center of IPM with financial support from the EU, compared Belarus with a family you spend more than you earn. According to him, two steps to the future challenges the country has already done — if nothing changes, there will come a financial crisis due to problems with creditors.
— Belarus can be compared with a family you spend more than you earn. Why is this happening? Because half of the family is unproductive — we’re talking in this case about the state enterprises, — said the expert. — What happens to the family next? First it passes through a long stage of stagnation. And this is the world Bank wrote 2 years ago when I first started working with the Republic of Belarus: prospects for earnings growth will be low if there is a restructuring of the economy. The next step is the vulnerability to debt. Belarus is currently at this stage. And the third phase (I hope that Belarus will never move to this stage) — this is a financial crisis that occurs when one faces problems with creditors.
According to Kremer, the problem in Belarus is associated with a number of borrowings in foreign currency. Some of them state-owned enterprises took to pay off the losses of previous periods.
On the other hand, we have households that their savings were kept in foreign currency, and creditors, as the loans in foreign currency, — he said. — What are the risks associated with such a chain of obligations? One of the risks of SOEs, which are unable to service their debt. The second risk is the financial banking sector may be in a situation when it is not able to control your balance. Another risk that might face the national Bank owing to external pressure, is a risk that he will not be able to restrain loss of gold reserves.
“As the experience of the 2008 crisis, international lenders tend to withdraw their funds from emerging markets”
Why in the next few years this chain of obligations may be under pressure? Kramer notes that the world economy is heading for recession. It will have a negative impact not only on exports, that is, the flow of currency into the economy.
But, as the experience of the 2008 crisis, the recession may have another effect, he says. Historically, international lenders tend to withdraw their funds from emerging markets to more secure assets such as gold or financial markets of more developed countries.
Those discussions are currently underway with the Russian Federation on economic relations with Belarus, not only affect the balance of payments but also the funding — Kremer emphasizes and draws attention to the impact of tax maneuver.
We need to remember that from 2018 to 2022, about 65% of the debts of Belarus must be put out either to Russia or the Eurasian development Bank, — said the representative of the world Bank. — This brings us to the question of debt refinancing.
“In our recommendations we are talking about the abolition of subsidies heat supply and tax incentives”
Kramer returns to the comparison with the family and offers to spend less and earn more.
— As for spending cuts, it is the responsibility of monetary and fiscal policy of the country, he adds. — The state of monetary and fiscal policy was tightened quite significantly, and it was right in response to the recession 2015-2016. Increased decreased borrowing by the private sector. The situation is not softened, and, judging from the data, reduced the number of businesses that take out loans to Finance their investments. It is vital that the national Bank continued tightening in relation to credit growth. But it must be remembered that the possibility of further tightening is quite limited.
About the fiscal part of the Kramer noted the work of the Ministry of Finance. According to him, the Ministry was able to stabilize the budget in a rather difficult situation, but now is not the time to ease fiscal policy.
— The family should not be borrowing, when the debt is already so large, — the expert believes. — There are opportunities for further optimization of public expenditures. In our recommendations we are talking about the abolition of subsidies heat supply and tax incentives.
“In fact, jobs in state-owned enterprises have become the system of social protection of the state”
— Also, we talk about structural reforms that will unleash the growth potential of the country. Steps should begin with the restructuring of the sector of state-owned enterprises, — says Kremer. — This sector has a large share of the economy, but uses labour and capital are much less productive than the rest of the economy.
The expert explains that you need inventory and classification of the public sector. The world Bank offers a find out which companies work fine in any situation can be quickly corrected through a financial restructuring which privatized, and which is simple to liquidate. While the world Bank insists that such a classification must conduct “an objective and independent entity”.
— If it’s going to run any institution with a strategic interest, the results of such work will not give, — he says. — Restructuring of state-owned enterprises leads to the reduction of the number of employed in these enterprises. Because in fact jobs in state-owned enterprises have become the system of social protection of the state.
The world Bank recommends strengthening the national programme of social assistance by creating a reliable programme of assistance to the unemployed and extensions of the program sash (the state targeted social assistance. — Approx. Onliner).
— We’ve done the calculations and they showed that the costs for the budget associated with the expansion of state protection, they are several times lower than support for state-owned enterprises, — says Kremer. To give you an idea how little it will cost such an expansion of social assistance — recommended extended model of targeted social assistance — sash — will cost you 0,0001% of GDP.
“We’re talking about the global recession, not the collapse”
— I already talked about those structural changes that we recommend in terms of expenditures of the state budget, with particular emphasis on the subsidized district heating and tax exemptions, — the expert continued. — And the last line of structural reforms, which we would recommend is the following. We would recommend to national Bank to take measures to prepare for a situation when you might weaken the chain of liabilities related to foreign currency loans. The better the country will be prepared for the possibility of such a situation, the less significant the consequences will be. It is those measures that it hopes the world Bank, is not required. They relate to the protection of deposits and the law on the settlement of the situation in troubled banks.
Thus with regard to possible negative consequences for Belarus, the world Bank calms: we are not talking about the shock of the situation 90s.
— It is not necessary so is pessimistic to look at the world economy. In 2008 there was a major shake-up, and we survived, — said Kramer. — We’re not talking about a repeat of 1992 in time-lapse version. We are talking about the fact that in Belarus there is a functioning institutional structure and 50% of the economy already in the private sector. We’re talking about the global recession, not the collapse. In this case we are talking about a scenario where the country will be difficult to achieve 100 billion GDP in the medium term and not about some Apocalypse.
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