The perfect storm begins in the Belarusian economy

Now the entire world economy is in storm. The crisis has been brewing for a long time and the coronavirus became only a trigger for it. We see the consequences - borders closed, transportation collapsed, oil prices fell by half, stock indices around the world fell by tens of percent.

In Belarus, the global crisis was followed by its own crises, which together created a perfect storm in the country’s economy. In addition to the coronavirus and everything connected with it, the republic has damaged relations with Russia and, as a result, problems with oil supplies, industrial production is declining, and many industrial giants had serious problems last year.

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So far, the situation in Belarus looks relatively good - enterprises are working (although some only for less than a week), people are receiving salaries (although some have received less), retail chains are offering discounts, and there are no special interruptions in goods, but destructive processes that can months are already passing to bring the situation in the republic to the level of the “dashing 90s”.

The first serious signal of impending problems, which almost everyone noticed, was the collapse of the Belarusian ruble last week. The fact is that the Belarusian economy is heavily dollarized. People are accustomed to counting in dollars, and large transactions, such as the purchase of real estate, are most often carried out in them.

Despite the fact that in the last 4 years the Belarusian ruble has been stable, and the dollar has always fluctuated around 2 rubles, the population has not gotten used to trusting the national currency. And, as soon as the exchange rate rose above its usual values, Belarusians rushed to exchange offices.

Until about Thursday, the fall of the ruble could still be attributed to Russia's problems, but yesterday the authorities seemed to have lost control over the foreign exchange market - the Belarusian ruble continued to depreciate, even despite the strengthening of the Russian ruble. On Thursday, the dollar jumped by 10 kopecks, and on Friday by two more. Now the official exchange rate is 2,56 rubles. In banks the rate reaches 2,80, but you can only buy currency with great luck; in most exchange offices it simply disappears; you need to order even small amounts of a few hundred dollars a few days in advance. All this only contributes to increased panic and further growth of the exchange rate.

But the currency situation is just the tip of the iceberg. If you study official statistics, you can better assess the scale of the problems. For example, data on industrial production for the first 2 months of 2020 was recently published. In the republic as a whole, it fell by 3,3 percent compared to the same period last year.

This in itself is a lot, but some regions simply show a landslide decline. In the Minsk region, the fall in industrial production was 13,1%, in the Gomel region - 6,6. Among the industries, oil refining (minus 39,2%), chemical industry (minus 18,5%) and mechanical engineering (minus 14,4%) lost the most.

Moreover, the real problems are even more serious, because many enterprises operate in warehouses, and finished product inventories are now at the highest level in the last 5 years. The saddest thing is that the city-forming industrial giants and until recently prosperous and large single-industry towns by Belarusian standards - Novopolotsk, Mozyr, Soligorsk, Zhodino - are at risk.

And this is only the first 2 months, when there was no coronavirus in Belarus yet, the borders were open, and exchange rates were more or less stable. One can only guess what will be in the statistical reports for March.

Now the devaluation has led to an increase in the debt burden on businesses, since most of the debt is denominated in foreign currency.

Closed borders have knocked out the tourism business and passenger transportation; mass fear of infection has brought down public catering and the service sector. Businessmen are sounding the alarm and collecting signatures demanding tax holidays, without which tens of thousands of bankruptcies and liquidations cannot be avoided, but they are unlikely to be heard - there are already big problems with collecting money for the budget, and the state still has to keep state-owned enterprises afloat and make payments on loans and pay salaries to public sector employees.

Moreover, the global financial crisis hit Belarus here too. Yesterday the placement of two Eurobond issues fell through. During the market collapse, buyers were found for only 2 percent of the issue volume. In fact, the republic has only one way to stay afloat - to spend gold and foreign exchange reserves. But given the scale of the crisis, they will only last for a few months.