Industrial enterprises to report losses in future periods for the sake of budget revenues

In August 2015, the Belarusian economy reported a loss worth BYR 14.8 billion. The financial health of the Belarusian economy has deteriorated due to the rouble devaluation and rising costs of enterprises in an attempt to preserve employment. A new regulatory document may enable to write-off differences in BYR exchange rates and preserve the volume of profit tax revenues in the budget.

As of September 1^st, 2015 net profit of the Belarusian economy totalled BYR 16.7 billion, which is just over a half of 2014 profits. In August 2015, net losses totalled BYR 14.8 billion. Only 3 of 16 industries are profitable. There are 1707 unprofitable enterprises in Belarus (21.6% of the total number). The size of the losses of unprofitable enterprises has increased by 4.2 times and reached BYR 34.7 billion over a year.

A lion’s share of net losses in August was due to the devaluation and overall economic situation. Devaluation of the national currency has led to reassessment of debt on foreign currency loans, increased volume of debt owed to foreign suppliers of raw materials, which have been obtained on terms of deferred payments. The Russian market continues to shrink, and due to the need to demonstrate full employment, costs of Belarusian enterprises have increased. Enterprises could not compensate losses with higher domestic market prices because of tight pricing policy by the regulatory authorities.

From the budget viewpoint, the growth in the number of unprofitable enterprises and increased losses is highly undesirable as it may lead to lower income tax revenues. In January 2015, when a similar situation occurred, enterprises were allowed to deter losses reports for up to 24 months. This decision had significantly distorted the overall financial picture, however, allowed to supplement the budget with revenues. The same solution may be applied in late 2015 and in some cases, the government may resort to repurchasing bad loans of enterprises from commercial banks in order to maintain their health and reduce social tensions. Small businesses, which are unable to become stable and profitable and are not of a great value for the economy, may be subjected to readjustment in 2016.

The national currency devaluation has led to a sharp decline in net profit in the economy and an increase in unprofitable enterprises in late August 2015. In order to maintain income tax revenues the state may adopt a regulation enabling to transfer losses from BYR exchange rate fluctuations onto future periods. In some cases, the National Bank may buy distressed debt from commercial banks to keep enterprises afloat.