Budget 2013: socially-oriented economy’s inflated expectations

Budget-2013 replicates previous years with a focus on GDP growth and high spending on social issue. However, economic picture in 2012 casts doubt on the feasibility of these tasks, even in the best case scenario.

In the August issue of the “Finance, Accounting, Auditing” magazine basic parameters of the socio-economic development in 2013 were published.

According to the draft budget-2013 GDP growth is projected at 8.5%, 2.5% of which is due to a new economy to occur in 2013, but it is unclear how and with what funding. The Finance Ministry corrected the Government’s projection and calculated the budget based on 6% GDP growth.

Projected export growth (15.2%) will provide for such GDP growth. This year’s export growth was achieved due to the low base line of last year and due to the solvents and lubricants exports scheme. In the coming year oil refining will not be able to contribute to such a boost in exports, because 100% of its capacity is already being used since the beginning of 2012. Exports of solvents increased exports by USD 2.5 billion in the first half of the year. There is nothing like it to replace it. Potash fertilizers, even at the most favorable conjuncture, cannot provide with such an increase in exports.

Budget’s priority is public sector’s wages growth. Average salaries are expected to increase by 24% during 2013. This will increase the volume of the money supply in the country and will put additional pressure on the BYR exchange rate, which was projected at BYR 8,400 per one USD. Money printing is projected at BYR 6 trillion to be used on concessional lending for housing construction. Bearing these factors in mind, it is not defined what funds will be used to support the BYR exchange rate as projected. Foreign debt payments in 2013 will make up USD 2.9 billion, not taking into account new loans and their repayment.

Particular concerns raise intentions to “mobilize taxation system’s internal resources”. As a rule it means a number of additional burdens on profitable enterprises.

Therefore these projections are overly optimistic, in particular, considering the socio-economic performance in 2012.

There are reasons to be concerned that money emission practices will be resumed. Heating of the economy via increased domestic demand, both from the population and businesses have had a negative impact in the past. The government plans to use the same techniques, which led to the devaluation in 2011 once again.