Report of government, National Bank on Belarus’ economic performance in 2014, forecast for 2015

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Drafts of the forest, budget and main guidelines of the monetary policy for 2015 should be finalized and submitted to the head of state on 25 November. Belarusian President Aleksandr Lukashenko gave the corresponding instruction as he heard out a report of the government and the National Bank on Belarus’ economic performance in 2014, forecast for 2015 on 11 November.

Speaking about the economic performance in January-September 2014, the President said that the Belarusian economy and its major branches expanded.

“There is gradual recovery in the manufacturing sector, if a 1.2% increase can be called a recovery. About 500 new industrial companies were established, more than 7,000 jobs were created. Fixed capital investments totaled $15 billion. They accounted for 28% of the gross domestic product,” the head of state said.

According to the President, the surplus of foreign trade in goods and services made up $660 million, which is a big improvement over the same period in 2013.

The head of state said that the payments on the national debt are made on time. Some $4.5 billion were allocated for these purposes in 2014.

Aleksandr Lukashenko praised the efforts to ensure budget discipline, timely performance of the obligations on the payment of salaries and pensions, other social and preferential payments. “The incomes of the population went up by almost Br60 trillion, a half of these incomes were deposited in Belarusian banks. It means that the wellbeing of our people and the trust in the banking system are increasing,” the President said.

“This is a good trend. However, I want to remind all those present at the meeting that back in the day the government, the National Bank and local authorities assumed obligations to fulfill a number of important parameters of the social and economic development. They determined those parameters themselves. By the way, the requirements were not too high,” the head of state noted. He reminded that the situation with the non-fulfillment of these obligations was discussed at the special session of the Security Council in summer. Participants of that session came up with a number of concrete measures which shall be applied by the end of the year. According to Aleksandr Lukashenko, it is time to determine whether the measures of the government and the National Bank were effective, whether local authorities did everything they could to hit the target.

“Have all the reserves been used? I think, no. The reports on my table suggest that we still face many chronic diseases and unresolved issues,” the head of state stressed.

Aleksandr Lukashenko pointed, first of all, to a considerable backlog of inventory at manufacturing enterprises. “The backlog of inventory went beyond the limit set by the government. It is even bigger than last year’s amount, although the last year was far from successful. What is the matter? I strongly warned you against overstocking. I did not force you to increase the output. What matters most are sales and revenues from these sales!” the President said.

The head of state is seriously concerned by the drop in the export of important commodities, like automobiles, farm machines, household appliances, and consumer goods. “As a result, we fall far short even of last year’s figures,” the President stated.

“Every year we talk about diversification; however, we keep exporting to the same traditional markets, first of all, Russia, Ukraine and Kazakhstan. It is the reason why even the slightest issue on these markets causes us problems,” the head of state said.

A serious issue is the deterioration of the financial situation at domestic companies. The number of loss-making entities rose more than 1.5 times, from 740 to 1,200, while the net loss nearly doubled, from Br5 trillion to Br9 trillion.

Besides, the situation with payments remains unsatisfactory. “How can one make money and increase current assets, if Belarusian companies provide loans to their foreign partners! Their accounts receivable are bigger than accounts payable when it comes to foreign trade. Defaulted debts owed to our companies are accumulating by leaps and bounds. From the beginning of the year they have risen 1.7 times to nearly $600 million. The question is: when will the money come back to the country?” the head of state asked the attendees.

The President also pointed to the slow pace and poor efficiency of the production upgrade. In his words, a testimony to that are numerous failures in the wood processing industry, light and paper-and-pulp industry, production of building materials and other industries. “We have discussed it multiple times, however little headway has been made. This is a serious failure of the government. This is a strategic failure! The question is: when will we abandon this unduly practice?” the President asked.

Aleksandr Lukashenko remarked that he expects clear answers to these and other questions from the Prime Minister of the country: “What has been done to rectify the situation? What else should be undertaken to complete this year the way we planned, to maintain sustainable economic growth, increase household income and secure the balance on the currency market?”

“I will tell you that excuses, references to unfavorable external factors like “the changing weather” are not accepted. They are inescapable. By the way, we made our plans for this year taking into consideration these unfavorable conditions. We need to operate in any circumstances, achieve results, respond promptly to the changing environment and make decisions fast. The world is changing too fast and we should not bear any loses because of sluggishness and indecisiveness,” the President underlined.

"Please do not forget that the year 2015 is the final year of the current five-year period. You and I will have to report to people what we have done for the past five years at the next All-Belarusian Congress,” the President noted. According to him, in this regard the requirements to the quality of the 2015 forecast are special. The head of state added that the key terms are known. Belarus will enter the next year with the agreed oil balance, acceptable oil and gas supply terms. As a result of the agreements on the EEC the budget revenue increased by $1.5 billion from the transfer of export duties on oil products. "I wonder how the government is going to make use of these favorable terms. Has the issue of compensation for the losses over the so-called tax maneuver in Russia been resolved? What quantitative and qualitative parameters of development can we expect in 2015, taking into account the real situation?” he said addressing the Prime Minister.

Aleksandr Lukashenko also stressed that it is necessary to have a clear understanding of how the banking system will help address the challenges of the real production sector.

“I will tell you straight away that heads of enterprises, business and simple people often complain about exorbitant interest rates on loans,” the President remarked. He stressed that he is awaiting a response from the head of the National Bank on the issue of the affordability of credit resources. "When will this problem be solved? Of course, you cannot rush in this area, but delaying is dangerous. I believe that we must act more quickly and decisively,” he said.

The President noted that he expects to get a clear answer whether the targets envisaged in the proposed draft policy documents for next year are, on the one hand, achievable, and, on the other hand, ambitious for the real production and financial sectors.

“I know that on the eve of the government conference some people raise questions both in mass media and in our society to hear my answers to them. Some questions exist objectively, there is no secret. I have never made a secret out of it and I have no need to play a game of secrets with the people starting with the resolution of economic problems and ending with personnel appointments,” the head of state said.

“I always warned everyone in advance: everything will depend on how a member of the government, an oblast governor, an assistant does their job, whether they work hard and what results they achieve,” the President said. “If there are results, there will be jobs. If there are no results, you know what can happen,” he added.

“Children of some ministers of ours permanently live in the United States of America and receive education over there while these ministers try to reform our education system. You can understand well what results these reforms can achieve,” the head of state noted added that he had spoken about problems with regard to personnel matters off the top of his head.

Prime Minister Mikhail Myasnikovich informed the head of state about the development of the real production sector of the Belarusian economy, ways to overcome negative trends and proposals to ensure balanced development of Belarus in 2015. He noted that despite the shortcomings, the economy has shown growth even in the face of serious and unforeseeable external difficulties. "In 2015, we need to use, as in previous years, the program-target method. But we suggest using new approaches in the forecast of balanced economic growth, eliminating the repetition of the errors, which were, unfortunately, made,” the Prime Minister said.

Mikhail Myasnikovich made one of the main emphases on the need for effective management of investment resources. He suggested directing them towards the creation of new industries and modernization of the existing ones. The government and the National Bank have agreed on the 2015 budget monetary balance. Thus, the budgetary foreign currency expenditures are linked to foreign exchange revenues. The government and the National Bank will work to increase the volume of gold and currency reserves of the country.

According to the Prime Minister, the draft forecast and the draft budget for 2015 have been formed taking into account the basic parameters of the Russian Federation as Belarus’ main trading partner. The main uncertainty factors which affect the performance of Belarusian companies and the country’s economic situation in general as well as the development of the corresponding forecast documents are oil prices and the exchange rate of the Russian ruble. The government and the National Bank have worked out several calculation scenarios given a different exchange rate of the Russian ruble and oil prices.

Taking into account the growth of the oil price for Belarusian oil refineries by $100 per tonne due to Russia’s tax maneuver, Belarus plans to reduce excise duties on oil products for the domestic market. The move will secure the profitability of oil refineries at the level necessary for the implementation of the investment program inclusive of attracted loan resources. At the same time, prices for petrol are expected to go up by 10% inside the country.

Aleksandr Lukashenko criticized the move, stressing that there should be no increases in petrol prices.

“We have made a decision regarding petrol. We have tagged its cost to the exchange rate of the US dollar. And now, as I have understood it, you want to support “poor” oil refineries and suggest that we take this money from people through higher prices for petrol,” the head of state said.

“My answer is you had better look for this money at the oil refineries,” the President noted and added that the same is true about the country’s banks. Aleksandr Lukashenko tasked the Chairman of the State Control Committee to set up a taskforce to inspect the oil refineries. “You will see how they do business there, what salaries they have, what cars they drive, where they live and what they are building,” the head of state said.

“There will be no price raising for petrol. We have tagged the petrol costs to the US dollar. It is a pretty high price for Belarus. There will be no artificial price hikes for oil products in Belarus,” the President stressed.

The draft budget also envisages additional funds to promote exports in 2015. The production facilities upgraded in 2014 are expected to make a significant contribution to export promotion. The government projects a significant increase in the export of timber and steel products, cement, leather and footwear, tires, and pharmaceuticals. In 2015 the export of innovative goods is projected to exceed $10 billion, 25% above the five-year target.

The Prime Minister reported on the plans to reduce the backlogs of inventory at enterprises, decrease foreign receivables. Given the high export risks, special attention in 2015 will be paid to the issues of import optimization.

In his report, Mikhail Myasnikovich also touched upon the key issues of the development of economic sectors, shortcomings and ways to resolve them.

"I did not hide my plans. The issue number one for me, keeping in mind the formula “cadres is all important”, is to form the effective government prior to the start of the new year, Aleksandr Lukashenko said addressing Prime Minister Mikhail Myasnikovich.

The President noted that the government developed the basic parameters of the socio-economic development and committed to them. The head of state asked what the January-September results were. The Prime Minister acknowledged that at the moment most of the targets were not met.

In this connection Aleksandr Lukashenko rightly observed that the 2015 plans are based on the results of the work in 2014 and their viability can be questioned already.

The President is convinced that poor exports are associated not with external circumstances, but with the inefficient work of the enterprises and relevant industries themselves. In this regard, the essential requirement is to improve the quality and reduce the cost of products, to pursue aggressive marketing policies and strategies to promote products in foreign markets.

In his report, Chairman of the State Control Committee Leonid Anfimov confirmed that the main indicators of the social and economic development were failed not because of any objective prerequisites, for example, negative trends in the global economy, but because of the disorganization, sluggishness, wastefulness, and somewhere excessive self-confidence in making management decisions.

Leonid Anfimov criticized the situation with the size of backlog of inventories and debt portfolio. A number of large-scale projects were not implemented in time, and thus the expected returns were lost. One of the main forecast indicators for the next year is the volume of sold products and proceeds. Of course we should see GDP, the industrial and rural development. However, all these will not matter if we have no currency inflow,” the Chairman of the State Control Committee said.

According to Leonid Anfimov, there are many drawbacks in the monetary and credit policy. The gap between the real production sector of the economy and the banking system of the country is huge.

Aleksandr Lukashenko also listened to the reports from Chairperson of the Board of the National Bank of the Republic of Belarus (NBRB) Nadezhda Yermakova and Finance Minister Vladimir Amarin.

Kirill Rudyi, Aide to the President and chairman of the interagency commission on economic security, gave an evaluation of the country’s expected development scenario for 2015 that had been presented by the government and the National Bank.

The President of Belarus ordered to come to grips with and optimize the spending in the banking sector. Aleksandr Lukashenko stressed: “Banks are cashing in! They borrow money under the 20% interest rate and resell them with a 15-20% margin. And the bankers dare say that it is not enough to maintain the normal operation of banks”.

Addressing NBRB Chairperson of the Board Nadezhda Yermakova, the head of state said: “I do not want any more talks stating that you and banks are living large. For example, I will give you a formula: your salary should be about as big as that of the prime minister. The other salaries should be ranked the way it is done in the government. Those, who do not want to work, can go ahead and quit. The same pertains to the spending made by all banks, starting with you. Two company cars for the National Bank will be quite enough. This is not cheap, as the gasoline prices are high. The salaries, maintenance, software – the things one cannot do without – should be approved by you personally for each employee. Other expenses should be eliminated. You report to me about it without reconciling your position with other banks”.

“Everyone must be treated in the same manner. Then, if we have tough times, we will be able to explain ourselves to people. Is it tough for you? It is tough for everyone. It is not a minor matter. It turns out it adds 15-17% to the cost of our bank loans. Regardless of the type of the bank — Belarusian, Russian, or foreign ones - everyone must be treated alike,” the President said.

Aleksandr Lukashenko demanded to finance only profitable projects. He warned against investing money in the project which will not pay off. “The should be no personal ties and interbank crediting. It is needed to check what banks provide the money and who use this money. We will get a very interesting picture,” the head of state remarked.

At the session the President wanted to hear objective reports about the performance of oblast capitals, concrete enterprises in January-September 2014.

At the end of the government conference Aleksandr Lukashenko demanded the country’s main development guidelines for 2015 be ready by 25 November.

“We need documents to work in 2015. The main thing is that we should preserve the current level of prosperity and operation of our state. With a small growth just to maintain momentum. If we have more, if the circumstances allow, especially the external ones, it will be great,” the head of state said.

“Despite the fact that 2015 is a political year, let us proceed from the real situation. We should retain the status quo. There should be no promises, no pay-offs prior to the election. We will have hard times if we siphon off government funds to weather the current global recession. We must not fool our people,” the President said.

“No extravagances. Let the people hear this. We should not buy people for empty money as this may result in some ugly consequences right after the election. We should proceed from the current economic situation,” the head of state added.

Speaking about investment projects, Aleksandr Lukashenko stressed that they should engage only those Belarusian companies which can offer products to investors.

“We cannot put it off till the day after tomorrow. Work out the legal framework if needed, if not – make decisions in the government,” the head of state said.

“We can produce necessary machines in Belarus,” the President emphasized.

As an example Aleksandr Lukashenko mentioned the construction of the nuclear power plant which makes an ample use of Belarusian materials. “The investments make up $10 billion. This is the money which was provided by Russia and it should be injected in our economy, We must use local metal, sad, gravel, scree and other materials. We must also urge our companies to produce equipment, parts and components for the nuclear power plant,” the head of state stressed. He added that it pertains to the implementation of all investment projects.

The Belarusian leader also pointed to the existing problem of unfixed equipment. Aleksandr Lukashenko instructed the Prosecutor General and the Chairman of the State Control Committee to take the issue under control.

Addressing heads of companies, the President emphasized that he demands their complete commitment.

“If there are no changes within the last two months of the year, all executives will be replaced,” the head of state warned.

Alexander said that it is necessary to protect local manufacturers. “It is up to you to decide how you will protect Belarusian manufacturers. But starting from tomorrow the Trade Ministry, governors, the Minsk mayor and the Chairman of the State Customs Committee have to take the most decisive measures to protect local manufacturers of goods in all areas, from trade to the customs border. You have to think how you will protect manufacturers. You cannot make excuses that we have obligations in the Customs Union and the Eurasian Union. We must protect Belarusian manufacturers,” the President stressed.

“You allowed the situation when Belarusian-made products cannot compete with imported ones on the domestic market. We stopped to sell TV sets, refrigerators. What can we demand of the director of this enterprises? Probably, it is time to replace him if there is such a situation at the enterprise. But he will wonder why we failed to protect the domestic market,” the head of state remarked.

“You are trying to adjust to the external situation, to the common market with Russia, Ukraine,” the President said and added that Russia protects the interests of its manufacturers if necessary.

“Just think about their attitude to BelGee. They once said that we cannot produce Chinese cars because they will be sold on the Russian market. But it does not contradict our agreements in the Customs Union and the Eurasian Union. What do we have now? The Russians have established similar enterprises, they open Chinese facilities without consulting with Belarus and Kazakhstan,” Aleksandr Lukashenko noted.

“Why did not we devise a mechanism for the protection of our companies? Why do we neglect our market? We branch out into the UAE, Mongolia, Myanmar, Vietnam, but forget about the domestic market! These are the questions for the government to answer,” the President added.

Aleksandr Lukashenko also touched upon the construction projects, noting that all of the facilities that are in a high degree of readiness should be completed next year. “I am against new facilities for social, cultural and other purposes. We should also take stock of our industrial projects. We should give up on things we can do without. The facilities that were built or upgraded should operate at full capacity. It is the main goal for governors and the government,” the President stressed.

Aleksandr Lukashenko also noted he expects additional information and consultations on the new decree.

“The document should be put in force on 1 January 2015. In December 2014 the document that explains the rights of executives with respect to their subordinates as well as their duties should be on the table on every executive. A step to the left or to the right by the executive, i.e. a governor, a chairman of the district executive committee, an MP, the Premier, means the end of career. In order to survive, executives should have a leverage on their personnel,” the head of state said. The Belarusian leader warned that when developing the document “civil servants should not see themselves only”.

“I need a digestible document that provides exclusive rights to company managers and the entire vertical of the executive power and spells out their total responsibility. Otherwise there will be no performance discipline and all the projects we were talking about will be buried under red tape and our inactivity,” Aleksandr Lukashenko said addressing the head of the Presidential Administration.