'Figures Are Frightening And Sometimes Even Shocking'

What will happen to the finances of Belarusian enterprises?

According to the results of January, the profit of Belarusian enterprises, compared to last year, fell by a third. The amount of net losses increased by more than 75%. Profitability in the economy as a whole decreased to 5.6%. The figures are frightening and sometimes even shocking.

Belmarket.by talked to Lev Lvovskiy, Academic Director of the BEROC Research Center, about what will happen to the finances of Belarusian enterprises.

— It seems that the data on the financial condition of Belarusian companies very much contradict the optimistic picture painted by our authorities. What's going on?

— It does not contradict this picture in any way. Nature takes over. There are some fundamental laws and fundamental principles in economics. You can try to deceive them, but nature will still take over.

That's a matter of course in our economy. Our Belarusian ruble is depreciating. This means that imports are becoming more expensive. We have constant problems with logistics due to sanctions and due to anti-sanctions. These problems are being solved, there are some workarounds, but all this costs time and money. Therefore, the prime cost is growing.

We should not forget that we have a demographic crisis. This is noted by independent and also pro-government analysts. One way to see this crisis is to look at real wages. If GDP has not recovered to the level of 2021, then wages have already exceeded the level of 2021.

This is also an additional cost for entrepreneurs. When they sell something produced using this more expensive labor, they are most often not allowed to raise prices. That is, they cannot shift the increase in costs anywhere. Profits are falling also. Everyone understands this.

All this leads to a deterioration in the financial condition of entrepreneurs. At the beginning of the cycle, this fat burns out, then enterprises begin to turn negative, then they begin to consume their working capital, and then — the final stage: they die.

— Can we say that the deterioration of the financial condition of enterprises is taking place at a higher rate than expected?

— It is not happening at a higher rate than expected. Our government is now interfering with one of the fundamental things in a market economy — the price system.

In fact, on the contrary, we were still lucky. All these negative processes could have started earlier. But our enterprises have already lasted a year within the framework of the price control system.

— What will happen to the finances of Belarusian enterprises? Because the government does not seem to be going to abandon either GDP growth plans or price controls.

— It depends on the policy of the state. If all current trends persist, and according to official statements they should, then, most likely, these losses will continue to grow. Because the costs of enterprises are unlikely to decline. Labor is unlikely to become cheaper. The government may also try to manage the labor market by administrative methods.

Plus, the foreign trade balance is no longer particularly positive. Most likely, it will go to negative areas. This means that it will be necessary to slowly lower the exchange rate of the Belarusian ruble. That is, the costs for enterprises will grow, and if they are not allowed to raise prices, then enterprises will go into greater and greater disadvantages. As a result, they will begin to go bankrupt.

— What will the government do when it sees the beginning of this decline of enterprises?

— It would be reasonable to let the prices go. But in this case, it is reasonable to release the prices in advance. That's unpopular now.

— If we consider two scenarios — slow degradation or collapse, which of the options is more likely?

— In fact, a massive collapse will be at the end of both scenarios. When a critical number of enterprises are off the game, cascade downfalls.

— Is this the main recipe? The abolition of price controls.

– Yes. And the sooner this is done, the less shock therapy will be needed.

— Is there a chance that the Belarusian authorities will be able and, most importantly, will want to abolish the administrative regulation of prices?

— To the question "can they", the answer is: of course they can. There's nothing fantastic about that. But whether they want to, this is a more complicated question. I think that it is quite possible. We have repeatedly seen that the Belarusian authorities make various unpopular decisions.

I think this decision should be made. It's impossible to escape from it. This is not such a problem as, for example, the retirement age when the adoption of an unpopular decision can be postponed for ten years for another government to deal with it. Another government will not survive with this problem. Therefore, I think that at some point such a decision will be made.