Belarus is aiming to stop paying for Russian gas in US dollars and start using Belarusian rubles in its contracts with Gazprom.
This goal was included in the “Strategy for increasing faith in the national currency until 2035” which was compiled by the Belarusian government and National Bank and approved on January 3.
The Belarusian ruble, introduced in 1994, has suffered from chronic devaluation and at present has “completely stopped fulfilling the function of money”. As much as 60% of the transactions in the country are made using dollars. Due to double-digit inflation, dollars are used for contracts, payment amounts and savings, according to the document published by the Belarusian government.
This unfortunate outcome is the result of the government’s policy of constantly “printing” money, and its lack of dollar revenue. Monetary emissions have helped to prevent the collapse of important production chains, but as a result the government and Central Bank are facing “serious challenges” ensuring price stability, and accelerating economic growth has become impossible, the strategy states. Increasing faith in the Belarusian ruble is the primary task, which is “vitally important” for the economic model based on internal investments, the Council of Ministers and National Bank emphasize. In order to do so, as of 2020 Minsk will start to employ people using the national currency, and will transition to inflation targeting by 2021. The government will also start to restrict the use of foreign currency in the country.
In particular, this will apply to gas contracts. “In order to increase faith in the Belarusian ruble, we propose to consider the matter of introducing changes to the agreement between the Government of the Republic of Belarus and the Government of the Russian Federation which exclude the option of making payments in foreign currency within the Republic of Belarus between residents for natural gas,” the document states. Once this decision has been approved by the government, the corresponding decree will need to be signed by President Alexander Lukashenko.
Belarus consumes roughly 20 billion cubic meters of Gazprom’s gas every year. Based on the average price of $160 per thousand cubic meters for former Soviet states (January-September 2019), this gas costs Minsk $3.2 billion per year.
In order to pay for the gas, Minsk is forced to hand over nearly a tenth of its dollar hard currency earned by exporting goods ($33.4 billion in 2018). However, Belarus has a negative balance of payments, in other words, the inflow of foreign currency is smaller than the outflow. The “gap” reached $7.4 billion in 2010, but by last year the government had managed to virtually eliminate it, thanks to external investments in the form of loans from Russia and the Eurasian Fund for Stabilization and Development.
The invigorating stream of foreign currency was interrupted after Minsk refused to integrate its currency system and state governance with Russia: not a cent of Russian money was included in Belarus’s budget for 2020.
In December, the Belarusian Finance Ministry took a $500 million loan from China, but this amount is not enough to cover all of its foreign debt obligations for 2020 ($2.6 billion in repayments and $1.2 billion in interest).
Belarus’s total foreign debt amounts to $16.5 billion, which is nearly double the country’s foreign currency reserves.