Pessimistic budget outline for 2017 may allow abandoning usual sequestration of costs

While drafting the 2017 budget, the Finance Ministry used the pessimistic forecast on oil prices. In 2016, the Ministry incorrectly assessed the oil market trends when preparing the 2016 budget, which led to repeated sequestration of expenditures. The draft budget for 2017 is likely to curb economic growth, but would stop regular budget revisions and would ensure stable funding for key projects.

The draft budget for 2017, prepared by the Finance Ministry, assumes the average annual oil price at USD 35 per barrel and the Russian Rouble rate at RUR 75 per USD 1. The budget surplus is envisaged at BYR 1.4 billion, which should be achieved by preserving circa BYR 1.1 billion from oil duties on petroleum products. The budget surplus will be used to service Belarus’ public debt, so as the due amount is estimated at USD 2.3 billion in 2017. The draft budget is fairly conservative, envisaging GDP growth at 0.2%.

In 2016, the Ministry based the state budget on an optimistic scenario, assuming an average annual price of oil at USD 50 per barrel. In H1 2016, the average oil price was USD 42 per barrel, which led to a fiscal gap over BYR 350 million. The Finance Ministry was forced to restrict budget spending, adjust some budget items downward, which lead to irregular financing of some economic sectors and created problems for companies participating in government programs.

A pessimistic budget option for 2017 has both positive and negative sides. On the one hand, cost containment, including to support the economy, will restrict economic growth, incomes will grow at a moderate pace and unlikely to reach the 2014 standard. On the other hand, the state will allocate funds only to the most effective projects, there will be no need to review budget expenditures and administrative procedures associated with cost-cutting will reduce; the anticipated higher price of oil will create a financial safety cushion in the case of insufficient budgetary proceeds from other budget items.

Taking into account the negative experience of 2016 and the expected GDP growth in 2017, this draft budget is likely to be adopted. Any additional budgetary proceeds in the case of higher oil prices will reduce Belarus’ needs in repaying her public debt, and consistent allocation of funds under the agreed state programmes will help avoiding problems with mutual settlements in the economy.

Overall, the draft budget for 2017 took into account mistakes made while preparing the 2016 budget, based on an overly optimistic oil price forecast. The pessimistic option will allow minimal economic growth and will stop regular budget revisions because of insufficient volume of incoming revenues.