On November 22, Belarus’ Council of Ministers and National Bank (NBRB) adopted a joint resolution deciding to service its debt obligations to the US Commodity Credit Corporation in Belarusian rubles. Belarus will use the USD/BYN exchange rate at the time of the payment as basis for its calculations.

According to Belarusian state news agency BelTA, the US Commodity Credit Corporation is the fourth organisation with which Belarus will service its debt in Belarusian rubles.

However, Belarus has likely serviced all of its Eurobond debts in Belarusian rubles during this year due to problems with international clearing and depository systems. Belarus’ Ministry of Finance has this year paid its foreign creditors by placing ruble-denominated payments in a special bank account of Belarus’ state-owned bank Belarusbank. Payments can be made in dollars, but the creditor will then need to accept a transfer in USD from Belarusbank, which is under US sanctions. It’s unknown which (if any) creditors have chosen the latter payment method, thereby risking fines for breaking US sanctions.

With around 20% of the NBRB’s reserve assets frozen in the EU and much of it being denominated in non-liquid assets such as gold or the IMF’s Special Drawing Rights, the NBRB can be estimated to have about €600mn and $2.4bn left in foreign currency reserves. While this is certainly enough to pay off its next large ($800mn) Eurobond payment, maturing on February 28, 2023, this would leave Belarus’ liquid reserve assets at a dangerously low level.

This year, the NBRB has repeatedly stated that it intends to preserve Belarus’ FX reserves at $7bn. According to the NBRB’s latest analysis:

“The net demand for foreign currency that emerged in February-March 2022 amidst negative expectations of economic operators gave way to a net supply of foreign currency, which helped maintain international reserve assets that amounted to $7.5bn as of 1 October.”

However, according to the NBRB’s new monetary management guidelines for 2023, FX reserves are estimated to end up at $6bn. If its non-liquid assets remain unchanged, this will mean that the NBRB is anticipating having only $2bn in FX reserves by the end of 2023.

In its new guidelines, the NBRB envisages a non-favourable external economic environment for Belarus where Western sanctions remain in place while global inflation rises, and global growth decreases further.

To counter these negative external effects, Belarus will continue to redirect its trade flows towards Russia and the Eurasian Economic Union (EAEU) by furthering its import substitution programmes. The NBRB will also focus on “building up capacity of banks to provide credit support to the economy as it is undergoing structural transformation and adaptation to a new environment.”

For 2023, the NBRB expects Belarus’ trade surplus to be $1.6bn, its GDP growth 3.8% and the growth of real income of households at 4.1%.

The pressured Belarusian economy

Contrary to Belarusian strongman Alexander Lukashenko’s orders to Belarusian officials, Belarus has not managed to curb inflation and increase economic growth this year. Between January-October, Belarus’ GDP continued to decline by 4.7% year on year.

Inflation has diminished due to the imposition of a strict price regulation system throughout the country. While this has decreased inflation for consumers it has done so at the expense of retailers, manufacturers and service providers. As Belarus’ deputy prime minister pointed out to Lukashenko in October, the currently high inflation levels are mostly external, and it’s impossible for Belarus to fend off rising global inflation.

On November 30, Belarus’ government drafted its national budget for 2023. The draft reckons on a deficit of $1.3bn, so the deficit will thus widen by 11.6% compared to this year’s target. For 2023, budget spending is planned to rise by 19.1%, while revenue is predicted to grow by 19.9%.

The draft also includes radical changes in the sources of financing the budget deficit. The main sources of financing will now be internal sources (up 60% compared to the budget for 2022), domestic borrowing, tax and grants from foreign countries.

Spending on “national interests” will rise by 15.4%, according to the new draft. This section likely includes a wide range of spending areas, from import substitution or the restructuring of non-solvent SOEs. The government has also budgeted $5.17bn for the repayment and servicing of its foreign debt obligations. National defence spending will increase by 50% and spending on “law and order” will rise by 30%.

The Belarusian government is thus clearly betting its money on maintaining economic stability through greater political control and further economic (and political) integration with Russia.

While the NBRB envisages a 4.1% increase in real disposable income of households, this is small comfort to Belarusian households today. Real disposable incomes of Belarusians decreased by 3.8% y/y in January-September 2022.

Across all sectors (except for perhaps agriculture), Belarus’ growth numbers are dropping. Despite this, the number of companies declaring bankruptcy and the number of unprofitable enterprises in the country has decreased. A reason to this could be the merging of smaller SOEs into holdings.

By looking at this year’s FDI statistics in Belarus, it’s clear how Western sanctions and Belarus' intensified economic integration is rapidly increasing Russian investments while those from Western countries and Ukraine are diminishing.

bne IntelliNews previously reported on how Belarus’ government policies are strangling the country’s growth prospects. The new price regulation system, increased taxation and this year’s massively heightened spending on Belarusian SOEs to facilitate import substitution is crowding out the private sector. Moreover, increased taxation of the population exerts further pressure on the already economically disadvantaged population. The most recent example is the suggestion of a new tax on sums of money donated or borrowed from close relatives.

Another way the Minsk government’s policies are strangling Belarusian growth is by forcing foreign investors to stay in the country with the threat of otherwise nationalising their companies. New investments from Western countries will certainly dwindle in 2023; companies that were thinking about exiting Belarus before will definitely want to exit now, and companies unable to do so now will likely do it as soon as they can.