Page 24 - BELRptSept18

6.0 Public Sector 6.1 Budget
The budget is almost in balance. Fitch's measure of general government balance (consolidated government including Social Protection Fund and off balance sheet expenditure related to guarantees and financial sector transfers) is estimated to have recorded a near-balanced position at -0.1% of GDP in 2017. This estimate incorporates a consolidated government surplus of 2.4% of GDP reflecting a combination of revenue growth derived from higher oil prices and a more dynamic economy and continued expenditure restraint.
Russia’s tax manoeuver will hurt Belarus in the pocket. Russia is carrying out its "tax manoeuvre" in the Russian oil sector – a major change to the way it taxes oil – that will be completed over the next six years.
The mineral extraction tax (MET) will gradually increase taxes on oil and export duties will slowly be phased out. This will have two major effects on the Belarusian economy, say analysts at Sberbank CIB.
“First, the cost of Russian crude will rise - we estimate that Belarus will spend $0.3bn more on crude in 2019 than this year, assuming Brent averages $73/bbl both years. Second, budget revenues from export duties will drop - again assuming Brent at $73/bbl, we project the decline next year at $0.3bn, with a budget surplus of 1.0% of GDP. However, if oil drops to $65/bbl, imports will drop by $0.5bn and export duties by $0.5bn, with the budget surplus falling to 0.7%,” Sberbank said.
Oil is a key product for Belarus, home to two of the most modern refineries in the region and as a transit country to customers in the west.
The tax changes in Russia will raise the cost of Russian oil for Belarus to $416/tonne next year from $399/tonne this year.
“In dollar terms, we expect oil imports to grow from $5.3bn last year to $7.2bn this year and $7.5bn next year with $73/bbl Brent. With oil at $65/bbl in 2019, imports will drop to $6.7bn,” Sberbank said.
That means Minsk will earn less budget revenues from export duties and the cash strapped republic depends on these de facto Russian subsides to survive.
According to Sberbank estimates, the tax manoeuvre will bring Belarus's budget revenues from export duties (including from re-exports) down from nearly $2.0bn this year to $1.7bn next year with Brent averaging $73/bbl, or to $1.5bn with Brent at $65/bbl.
That will result is a bigger current account deficit. The drop in Russian export duties on oil should translate into a contraction in the tax revenues generated from the re-export of Russian crude. Moreover, more expensive oil imports amid an expected decline in global prices would mean a higher current account deficit.
24 BELARUS Country Report September 2018 www.intellinews.com