Amid slowdown in economic activity, Belarus has restored wage growth. Such a situation has occurred due to the National Bank’s measures aiming to stabilise the national currency. Further wage growth and potential problems in the banking sector due to asset quality deterioration may become the main domestic risk factors for the Belarusian economy in 2015.
In early 2015, Belarus increased the share of the Russian rouble in the basket of currencies up to 40%, its strengthening therefore has led to wage growth from USD 400 to USD 450. Simultaneously, since early 2015, the economy has been reducing its debt in the national currency to the banking sector. Due to economic slowdown, businesses have lowered their demand for expensive loans and the population has reduced the volumes of consumer loans fearing of possible problems with repayments amid mass lay-offs at enterprises.
The National Bank is the main culprit of such a trend. In order to reduce devaluation risks, the National Bank very swiftly lifted the restrictions on sales of foreign currency, which were in place during the devaluation. It also increased the cost of available resources in banks in order to support liquidity and, together with the government undertook measures to limit lending to a number of state programmes. All these actions have led to a stabilisation on the domestic currency market and of the national currency exchange rate; interest rates on deposits have ensured the outflow of rouble resources from the currency market; high interest rates on loans have hampered growth of lending to enterprises and encouraged repayment of earlier loans.
Amid the upcoming presidential campaign in late 2015, wages in Belarus may continue to grow. As a result, the demand for foreign currency and consumer imports may increase. In addition, demand for domestic products on the domestic and external markets may decline due to deterioration of the competitiveness and increased costs.
After the devaluation, the banking sector requires additional resources. Previously, half of the cash flow was through banks with Russian capital, which now have limited access to international financial markets. Due to deteriorating financial health of industrial enterprises, the volume of non-performing loans, which is already high, will swiftly increase. If creditors are unable to repay loans, banks might be unable to recover credit funds in full due to significantly exaggerated value of collateral assets. Amid the lack of funding and deterioration of the assets’ quality, any problem with customer service may lead to a collapse of some banks and the banking system as a whole. If so, the National Bank would support rouble obligations only and would be unable to repay foreign currency liabilities to depositors in full.
The National Bank has managed to overcome the devaluation expectations swiftly, but created the preconditions for new economic problems to emerge. Wage growth and expected deterioration in asset quality in the banking system would be the main risk factors for the Belarusian economy in 2015.
