Yet not signed, Belarus 2016 Budget requires adjustment

The Belarusian authorities have projected budget surplus for 2016 at 1.7% of GDP. In 2015, the country’s budget was substantially revised due to the devaluation of the national currency. Current BYR exchange rate is overvalued, which means that the 2016 budget would be reviewed already in Q1 2016.

According to the Finance Ministry, the draft budget for 2016 has envisaged budget surplus at BYR 17.2 billion or 1.7% of GDP. The tax burden will remain at 25%, but excise duties on alcoholic beverages will be revised downward, while the tax burden on Belaruskali will increase and new fees will be introduced. One of the main budget expenditure will be servicing the public debt – payments due in 2016 total BYR 20.2 trillion or USD 1.1 billion. Public debt payments will be made from export duties on oil products, which Russia has allowed Belarus to list in her budget. Some fees will be adjusted to inflation, which has been projected at 12% maximum rate (December 2016 to December 2015).

Belarus’ 2015 budget has been adjusted during the year, mainly due to the devaluation of the national currency and the fall in oil prices. Annual average rate has been envisaged at BYR 11 400 / USD 1. However, already in November 2015 the Belarusian rouble exceeded BYR 18 000 per USD 1. The slump in oil prices has led to a revision of budget revenues from export duties on oil and oil products. Inflation in 2015 will exceed the planned 12% due to growing prices on imported goods.

The adoption of the national budget is scheduled for mid-December 2015, however, the draft may be amended before that. For instance, in the 2016 budget, an average annual rate of the rouble has been projected at BYR 18 600 / USD 1, while on January 1^st, 2016 – BYR 18200 – BYR 18300 per USD 1. This means that the government is overly optimistic about the BYR exchange rate by projecting rouble depreciation at max 5% in 2016. Illogically, that it is half of the projected inflation rate and much less than the base rate (22%).

If the national currency depreciates as projected, the dollar prices on domestic products will increase, reducing their competitiveness. In addition, imports will increase significantly, which is highly undesirable for the Belarusian economy in a recession. Most likely, rouble will be unable to keep up with the projected devaluation rate, and the budget will be revised as soon as Q1 2016. This will include revision of revenues from foreign economic activity and higher costs due to increased costs of servicing the public debt.

The draft 2016 budget implies that the authorities want to demonstrate that there are no prerequisites for the devaluation of the national currency.