Citizens and businesses’ currency savings as a source of debt refinancing
2013 will mark the beginning of substantial external debt repayment period for Belarus. Interest rates on foreign currency deposits in the domestic market are lower than the foreign loans rates. A new savings strategy could avoid the need for external borrowing.
On October 4th, 2012 Finance Minister Kharkovets spoke about the possibility to place foreign currency bonds in the domestic market.
In 2013 Belarus will have pay off USD 2.9 billion. It is unlikely that the IMF loan will be refinanced, bearing in mind Belarus’ commitment to high GDP growth, which contradicts the IMF recommendations. In addition, cooperation on a new credit programme is halted by political factors.
Belarus agreed to refinance the Belaruskali loan at 8.5% for a three-year period. This rate is much higher than the rates prevailing in the domestic deposit market. In August the average rate on new short-term deposits in foreign currency for the population was 5.8% per annum and 3.6% for legal persons.
The government has reiterated its desire to raise population’s funds in the country’s economy several times. However, the increase in deductions on funds in foreign currency up to 12% would result in a further rates’ reduction and the currency outflow from the banking system.
Given the circumstances, the state could issue foreign currency bonds in the domestic market. In spring 2012, with 9% annual rate, there was a high demand for banks’ foreign currency bonds. New issues were bought out in short terms.
There are some technical difficulties with issuing bonds for private persons. However, the state could issue foreign currency bonds and simultaneously announce amnesty of capital, which has been planned. The state could consider amnesty of capital, which was invested in state-currency bonds with a lower interest rate than in the foreign loans market. These funds could be put in the turnover in Belarus and the public debt servicing cost could be reduced.
Therefore the Finance Ministry can assist the creation of a new investment instrument, to reduce the debt servicing cost and bring additional resources in the economy.
The Labour and the Tax Ministries are considering the possibility to include persons engaged in some economic activity without forming a legal entity in the social security system. When the decree No 337 comes into effect, the number of private entrepreneurs is likely to reduce due to the possibility of reducing the tax burden when switching to a tax payment as an individual. 95% of self-employed, including PE, pay insurance premiums on the basis of the minimum wage. The number of self-employed citizens is expected to increase, the number of insurance contributions to the pension system from PE will decrease, the number of citizens who will pay a fee to finance government spending will decrease by several tens. Self-employed citizens have the alternative not to pay social security fees and save resources for future pensions, which, given the gradual restriction by the state of pension requirements could be a more long-sighted option.