Belarus counts on new loans to close international deficit
The National Bank of Belarus on December 12, 2011 increased the refinancing rate from 40% to 45%. By gradually rising interest rates the authorities fulfill the requirements of the ACF of the EurAsEC. Raised rates will significantly reduce business activity in the country and strengthen recessionary expectations.
The EurAsEC Anti-Crisis Fund will make the second transfer of $ 440 million to Belarus in December.
The National Bank forecasts that the volume of international reserves by the end of 2012 will amount to $ 7 billion. The main sources of foreign currency proceeds are projected from foreign direct investment ($ 3.7 billionfrom privatization), and from foreign borrowing by banks ($ 1.7 billion).
It is extremely important for the Belarusian authorities to receive all tranches of the USD 3 billion loan of the EurAsEC in 2011-2013 (USD 1.24 billion in 2011).
To this end the authorities are going to fulfill the requirements of the ACF and gradually raise the interest rates. On December 12, 2011 the National Bank of Belarus raised the refinance rate by 5 %, from 40% to 45%. At the same time interest rates for bank liquidity support operations were raised from 65% to 70% per annum.
Higher interest rates are still far from positive values as the annual inflation exceeded 100%. However this increase was enough to receive the following transfer of the EurAsEC Anti-Crisis Fund.
In the meanwhile increased rate becomes an additional factor that “cuts down” domestic demand from businesses and residents. Therefore 5% of the GDP growth will require significant emission injections, which will stir upinflation and will cause a new wave of devaluation expectations. The only way to achieve 5% of the GDP growth not via emission and in compliance with the EurAsEC and CES requirements is to increase exports by at least 10%, which is particularly challenging, given the low competitiveness of Belarusian enterprises.
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.