July 27 – August 2, 2020
The ruling elite

Enhanced electoral populism further deteriorates the state of public finances

The situation got worse
Enhanced electoral populism further deteriorates the state of public finances

By Zmicier Kuchlej

The Belarusian authorities continued to pump the economy to support the public sector, however, employment in state-owned companies continued to decline. Pre-election populism and resumed pump-priming threaten to destabilize the National Bank’s monetary policy.

In June 2020, the budget deficit in Belarus increased sharply totaling USD 1.8 billion in H1 2020. The non-adoption of quarantine measures to address the COVID-19 outbreak last spring has prevented mass layoffs and somewhat mitigated the outbreak’s impact on the economy. However, in April-July layoffs were more common than hires, and GDP dropped by 1.7% in H1 2020.

In Q2 2020, in the light of the Belgazrpombank case, most banks saw a funds outflow – deposits decreased by BYN 2.3 billion or 10.8%.

According to the State Control Committee, support for the public sector creates a huge burden on the state budget. In 2019, considering all the preferences, such support totaled BYN 2.9 billion. Despite the SCC’s position about its inefficiency, public support for state-owned enterprises remains a major policy instrument for the pollical leadership.

Halauchenka’s government remains committed to pumping priming. The Belarusian authorities yet have not abandoned plans for the second stage of modernization at state-owned “Mogilevkhimvolokno”. Besides, the incumbent president has resumed the conservative rhetoric about import substitution and state investment in production modernization.

Simultaneously, the president has embraced large private business – last week, he visited a private milk processing enterprise. That said, most often, a large business has links with some nomenclature groups and informal agreements with the country’s top leadership.

Amid dropping popular ratings, the incumbent president has resumed pre-election populism, which manifested itself in increased support for public enterprises, pay rises in the public sector, and slightly upgraded pensions. Authorities have made an unprecedented decision to pay pensions early in August, before August 9th (election day).

All these measures unlikely to have significantly improved the popular support for public institutions, however, they may undermine the balanced monetary policy pursued by the National Bank in recent years.

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Once a week, in coordination with a group of prominent Belarusian analysts, we provide analytical commentaries on the most topical and relevant issues, including the behind-the-scenes processes occurring in Belarus. These commentaries are available in Belarusian, Russian, and English.

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