Growing wage arrears may prompt Belarusian authorities to switch on printing press

Containment of public spending and the overall economic situation has resulted in rapidly growing wage arrears. The economic authorities are now prompted to choose between cutting government spending and pumping the economy with note issue. Control over government spending might lead to higher social tension levels, while emission pumping of the economy to higher inflation and national currency devaluation. State-owned enterprises are most likely to receive state funding from note issues.

According to the National Statistics Committee, as of July 1^st, 2015, 555 enterprises had wage arrears, totalling BYR 411.7 billion, which is more than 2% of the entire country’s payroll. For comparison, on January 1^st, 2015, wage arrears totalled only BYR 22.1 billion by 20 enterprises. Agriculture enterprises in Minsk and Vitebsk oblasts account for more than 60% of the overdue payments and industrial enterprises and construction companies – for 32%.

The rapid growth of wage arrears is linked to two main factors. Firstly, contained budget spending on government programmes led to significant debts by the state vis-a-vis the main recipients, which, in turn, led to an increase in accounts payable by them to subcontractors and suppliers, to paralysis of settlements within the chain of contractors and to suspension of activities by some enterprises. Secondly, the overall deterioration in the economy has led to fewer orders from businesses and amid economic recession, enterprises’ financial state has destabilised. Disruption of settlements on any of the major projects may prompt an enterprise to suspend its activities.

If the authorities continue the policy of containment of public spending, the number of enterprises with wage arrears will increase, so as the volume of arrears. Workers at some enterprises have already managed to receive wages through strikes, which could set an example for workers at other enterprises.

One option to solve this problem is to switch on the printing press. This would be a short-term solution, which however would not solve the overall problem with settlements in the economy, requiring significant budgetary resources. Money issue at greater volumes would lead to the national currency collapse.

Even if the state manages to repay all wage arrears by a certain date, next month, the problem would inevitably re-emerge. Nevertheless, state-owned enterprises would seek funds to repay wage arrears in order to reduce social tension ahead of presidential elections.