Alcohol industry is allowed to increase exports
In May, export quotas for alcohol producers were abolished.
Alcohol production industry has annual production volume plans. Increased alcohol excise tax resulted in reduced vodka sales and overstocked warehouses. In order to prevent the industry’s collapse export quotas for alcohol production will be abolished.
In 2013 vodka and other alcoholic beverages production quota was set at 19 630 thousand dl, which is 20.7 liters per 1 person, including infants and the elderly. This is somewhat below the 2012 quota (20 020 thousand dl). In January – April 2013 Belarus produced 4,923 thousand dl of vodka and drinking alcohol, which is 5.5% less than in 2012. The decline in the production was due to the decreased consumption of vodka by population, and some problems with the distribution of alcohol quotas among enterprises.
State-owned alcohol producers are forced to meet the plans. Private producers do not have production plans. Due to increased excise duty on alcohol, retail vodka prices went up by 17.4% compared with early 2013 and consequently, vodka retail sales dropped by 12.7%. Due to unadjusted alcohol production plans, warehouses increased their alcohol stocks up to two months production volume by May 1st, 2013. On January 1st, 2013 stocks accounted for only one-third of the monthly production volume.
In the alcohol industry, state enterprises are virtually paralyzed. Alcohol production, even without consequential sales, requires them to pay the excise duty in the budget. Excise duties on alcohol make a large part in the final product’s price and distilleries are among the largest taxpayers in the country. However sales are falling and sellers delay settlements with alcohol producers. State-owned enterprises borrow at high interest rates to pay taxes. Warehouse stocks require additional funds to pay for storage space, resulting in high expenditures, particularly for Minsk-based businesses. The government is not willing to reduce the excise duties due to their great importance for the budget against the background of deteriorated economic situation. The government figured that the abolition of export production quotas for alcohol producers will help improving the situation since the growth of vodka consumption in the country is not envisaged.
Thus, the government’s desire to increase budget proceeds has resulted in significant problems for state-owned enterprises. Abolition of export quotas is an attempt to address the problem, but it is unlikely to substantially improve the situation in the industry due to the fierce competition in foreign markets.
The rapid increase in wages has led to a decline in the ratio between labour productivity and real wages to one. Previously, the rule was that enterprises, in which the state owned more than 50% of shares in the founding capital, were not allowed increasing salaries if this ratio was equal to or less than one. The authorities are unlikely to be able to meet the wage growth requirement without long-term consequences for the economy. Hence, the government is likely to contain wage growth for the sake of economic growth.
According to Belstat, In January – August 2017, GDP growth was 1.6%. The economic revival has led to an increase in wages. In August, the average monthly wage was BYN 844.4 or USD 435, i.e. grew by 6.6% since early 2017, adjusted for inflation. This has reduced the ratio between labour productivity and real wages from 1.03 in January 2017 to 1 in the first seven months of 2017. This parameter should not be less than 1, otherwise, the economy starts accumulating imbalances.
The need for faster growth in labour productivity over wage growth was stated in Decree No 744 of July 31st, 2014. The decree enabled wages growth at state organizations and organizations with more than 50% of state-owned shares only if the ratio between growth in labour productivity and wages was higher than 1. Taking into account the state's share in the economy, this rule has had impact on most of the country's key enterprises. In 2013 -2014 wages grew rapidly, which resulted in devaluation in 2014-2015.
Faster wage growth as compared with growth in labour productivity carries a number of risks. Enterprises increase cost of wages, which subsequently leads to a decrease in the competitiveness of products on the domestic and foreign markets. In construction, wholesale, retail trade, and some other industries the growth rate of prime cost in 2017 outpaces the dynamics of revenue growth. This is likely to lead to a decrease in profits and a decrease in investments for further development. Amid wage growth, the population is likely to increase import consumption and reduce currency sales, which would reduce the National Bank's ability to repay foreign and domestic liabilities.
The Belarusian government is facing a dilemma – either to comply with the president’s requirement of a BYN 1000 monthly wage, which could lead to new economic imbalances and could further affect the national currency value, or to suspend the wage growth in order to retain the achieved economic results. That said, the first option bears a greater number of negative consequences for the nomenclature.
Overall, the rapid growth in wages no longer corresponds the pace of economic development. The government is likely to retain the economic growth and retrain further growth in wages. Staff reshuffles are unlikely to follow the failure to meet the wage growth requirement.