National Bank has lost domestic sources to replenish international reserves

In March, both private individuals and legal entities were net purchases of the foreign currency. Belarus’ international reserves will continue declining, due to the lack of guaranteed revenues from external creditors and the upcoming debt repayment period. Given the circumstances, the National Bank will have to readjust the national currency (by circa 15%) after the World Hockey Championship.

On April 3^rd, the National Bank published statistics on domestic currency market in Q2014.

In early 2014, devaluation, anticipated by many, did not occur. Belarusian ruble was stable against the US Dollar, and people have been profiting from high interest rates on national currency deposits. People were selling their currency savings and depositing Belarusian rubles in the banking system. Simultaneously, the National Bank, aiming to make loans affordable, was gradually reducing the interest rates on national currency deposits, along with the population’s interest in ruble deposits. In March, the population was a net buyer of the foreign currency (bought USD 87.2 million).

The National Bank was left without domestic resources to replenish the international reserves. Currency bonds worth USD 50 million, issued for the population have not been fully sold during the past three months. Bonds for legal persons failed completely (USD 8 million sold out of USD 50 million). Both, individuals and legal entities have become net currency buyers. External debt service in March and April 2014 will require USD 500 million.

Acquired credit lines from the Development Bank and other banks in Belarus can not fully meet the economy’s needs in loans. Thus, the international reserves become the only source of funding for the National Bank, leading to their reduction to the critical size (1 month worth imports of goods and services).

Currently, the Belarusian ruble’s stability is due to a political decision. The State has to demonstrate a controlled situation in the economy, despite the adverse external and internal factors in the economy. Russian economic situation will continue deteriorating, also due to the imposed sanctions, resulting in a further decline in sales of Belarusian goods on the Russian market.

When Belarusian ruble is devalued, the devaluation size will exceed that in Russia. This will help Belarus to overcome the negative effects of the recession and Belarusian economy will be able to sell the existing stocks at industrial enterprises.

The Belarus’ economy has repeated all mistakes from the previous economic cycle before the devaluation. Once again, the need for a new devaluation will be explained by the external crisis, without acknowledging faulty domestic economic policies.