Allotment of loans is sharply reduced
The National Bank of Belarus unofficially advised commercial banks to suspend the allocation of consumer loans for the population due to high interest rates and increased risks, as well to reduce the share of foreign currency loans in their credit profile. As a result, it could imply a temporary ban on provision of any loans for the population.
Belarusian ruble deposits in banks decreased by 19.4% during the past 9 months. On October 1, 2011 the amount of Br deposits of the population constituted Br 19.9 trillion and foreign currency deposits USD 3.6 billion. Household deposits in local currency in January-September 2011 decreased by 27.9% or by Br 2.5 trillion. Foreign currency deposits in January-September 2011 reduced by USD 823 million, or 18.8%.
In October the gold and currency reserves of Belarus, calculated by the IMF standards decreased by USD 84.8 million.
In October the gold and currency reserves of Belarus, calculated by the IMF standards decreased by USD 84.8 million. Preliminary data for November 1, 2011 said the GCR amounted to USD 4631.0 million. The NBB plans to replenish the treasury in 2012 by $ 1.5 billion at the cost of the integration discount on the gas price. Moreover, in 2012 the NBB counts on the proceeds from privatization ($ 2.5 billion) and funds of the EurAsEC ACF ($ 880 million). With the expected positive balance of foreign trade amounting to USD 1.8 billion in 2012, the increase of the GCR is projected by the NBB at USD 1.6 billion.
An immediate action to increase the GCR is a must, given the scale of debt payments due by the government and the National Bank in the medium term. In 2012 - 2014 the Ministry of Finance and the National Bank will have foreign and domestic liabilities up to $ 8.9 billion (in 2012 foreign debt repayments will amount to $ 1.7 billion, or 3% of the GDP).
The NBB is aware of the growing risks and imbalances in the banking system and tries to prevent them, also by using the administrative measures. At the same time, the National Bank, as well as other governmental bodies, has to stabilize the social tension within the situation of ongoing economic crisis and rising interest rates on loans, resulting in the increased number of bad debts and the failure of the population to repay the loans at the new rates. One of the solutions is a temporary de facto ban on loans to the population until the rates become positive and lower.
The National Bank, as well as other governmental bodies, has to stabilize the social tension within the situation of ongoing economic crisis and rising interest rates on loans, resulting in the increased number of bad debts and the failure of the population to repay the loans at the new rates.
The plans to increase the gold reserves by $ 5 billion in 2012 are questionable. This also applies to the expected positive balance of foreign trade, and proceeds from privatization. Moreover, the projected growth will not cover all of the foreign currency liabilities in 2012-2014. Therefore the NBB should seek for the new sources of foreign currency proceeds. The ideal solution would be a new IMF loan, since its basic requirements do not concern the monetary policy directly. However it will require changes in the real sector and in fiscal and social policies and will have a strong impact on the very basis of the Belarusian economic model, which is not acceptable for Mr. Lukashenko. Nevertheless the NBB favours the new loan agreement with the IMF.
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.