Budget Sustainability Policies in the Republic of Belarus Elena Pechen, Director, Chief Directorate of Budget Policies, Ministry of Finance, Republic of Belarus February 2016

Human Capital Development Index Background Form of Government: presidential republic Population: 9.5 million people (men – 46.5%, women – 53.5%; urban residents – 77.3%, rural population – 22.7%) Capital: Minsk – 1.9 million people State Languages: Byelorussian, Russian Open, export-oriented economy: Belarus sells its goods in the markets of 161 countries Key trading partners in 2015: Russia – 48.3% 48.3% of total trade, EU countries – 25.3%, other countries– 26.4% Belarus Economy Currency Byelorussian Rouble (BYR) GDP US$76.2 billion (2014), per capita- US$6,600 (2014) GDP growth rate 101.7%(2012), 101.0%(2013), 101.7% (2014), 96.1% (2015, projected) Inflation (percentage change on previous year) 59.2% (2012), 18.3% (2013), 18.1% (2014), 13.5% (2015 projections) Human Capital Development Index High Level Development Group of Countries- 0.798 (50th position in global ranking)

International Comparisons Centralization Rate (central government budget as % of GDP) GDP per capita (US$ thousand) Албания Беларусь Россия Украина Б&Г The World Bank Doing Business Rankings (June 2015) National Debt as of the end of 2014, % of GDP Maastricht Criterion – 60%

Social and Economic Development Priorities in the Budget Sector 1. Maintenance of optimal tax burden for the economy 2. Tax policy harmonization in EEU countries 3. Support of sustainable and well-balanced republican and local budgets through financing of expenditures within the available limits of revenues and sources of funding for budget shortfall (surplus) 4.Reduction of external national debt and improvement of government debt management efficiency while retaining its size, structure and debt servicing and repayment at safe levels to exclude excessive pressures. 5. Keeping the social sector of budget expenditures in place, prioritizing health and education sectors aimed at the improvement of health indicators and further development of education process.

Background for Introduction of Budget Rules 1. Establishment of stable environment for businesses, with regard to aggravating external economic factors 2. Promotion of investment opportunities of the economy and support of stability of its tax legislation. 3. Government guarantees of the minimal social service standards to the citizens, retention of social sector in budget spending 4. The time for peak in the national debt repayments, significant pressure on the budget to support the national debt repayment and servicing 5. Debt instability of individual local budgets providing a negative impact on macroeconomic balance

Consolidated Budget Revenues Revenues (2015 (estimate), %) Revenues (2016 (approved), %) Amount of Revenues in 2016: 288.9 trillion BYR ($12.7 billion)

Rule 1: not to increase the tax burden Tax burden (% of GDP) Key inputs of tax burden: Profit Tax (18%) VAT (20%, 0% on exports) Property Tax (1-2.5 %) Income Tax (13%) Excise and Customs Duties

Consolidated Budget Expenditures Expenditures (2015 estimate) Expenditures (2015 estimate) FYI: Average wages and pensions (US$) Expenditures in 2016: 272.3 trillion BYR (US$12.0 billion)

Rule 2: Maintaining budget social expenditures in the GDP Consolidated Budget Expenditures for Social Sector (% GDP)

National Debt– consistently safe levels We assess also positively a recently approved debt policy establishing internal thresholds for national debt to GDP ratio at the level of 45% and the annual spending ratio for servicing and repayment of hard currency debt to the international reserves also at the level of 45%. Standard & Poor’s, Research Update, April 10,2015  As of 01.01.2016: External national debt is US$12.4 billion, or 22.7% of GDP Key features of our external national debt: Share of loans from international financial institutions – 20.8% Share of earmarked, targetted loans – 41.0% Raising of foreign National loans seeks implementation of critical investment projects (earmarked, targetted loans) and national debt refinancing. External and internal national debt, US$ billion * * * As of 01.01.2016

Rule 3: Retention of safe levels of the national debt National Debt, % of GDP Maastricht Criterion– 60% Legislative Threshold – 45% * * As of 01.01.2016

National Debt Economic Safety Indicators Threshold Value 01.01.2015 01.01.2016 External National Debt, US$ billion 12,6 12,4 External National Debt, % of GDP 25 16,6 22,7 Internal National Debt, Trillion BYR 48,4 97,4 Internal National Debt, % of GDP 20 5,7 9,8 Payments for National Debt Servicing (both foreign and domestic), % of republican budget revenues 10 5,5 7,9 Payments for Foreign National Debt Repayment and Servicing Fees, % of hard currency receipts 7,1

Rule 4: Generation of Republican Budget Surplus for National Debt Repayment Surplus generation in 2015-2016, BYR trillion Budget expenditures Budget expenditures Surplus generation Surplus generation 2015 (estimate) 2016 (approved)

Republic of Belarus Budget Structure General Government Consolidated Budget Government Extra-Budgetary Funds Social Welfare Fund Government Extra-Budgetary Fund of Civil Aviation Government Extra-Budgetary Fund of the Penitentiary Department Government Extra-Budgetary Fund for Universal Servicing of the Ministry of Telecommunications Consolidated Budget Republican Budget Local Budgets (1,327 total) Primary Level Budgets Rural (1,162) Rural Towns (16) City (cities subordinate to districts) (14) Basic Level Budgets District (10) (cities subordinate to oblasts/regions) (118) Oblast (Regional) Level Budgets Oblast Budgets (6) Minsk City Budget

Budget Rules at the Local Level Sustainability of Local Budgets Deficit Rule Debt Rule Rules for Allocation of Resources Well-Balanced National Budget

Budget Rules at the Local Level (cont’d) Deficit Rule Debt Rules Rules for Resource Allocations Budget Code Law on Republican Budget Decisions of Local Council Members Annual limits for budget deficits Permission to use accumulated balance from previous years Debt level restriction Limits on expenditures for debt servicing and repayment Borrowing exclusively in the internal market Conditions for issuing guarantees Allocation of spending authorities Distribution of tax and non-tax revenues by budget levels Inter-budgetary relations