Belarus has achieved foreign trade surplus by restricting imports and devaluing rouble

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April 22, 2016 19:08

In January 2015, Belarus marked foreign trade surplus – its highest since July 2012. Devaluation of the Belarusian rouble and a ban on price increases have led to a decrease in imports to Belarus. This result is only temporary – soon the trade balance deficit will return.

In January 2015, trade balance surplus was USD 244.7 million. Imports of goods decreased to USD 1821.9 million or by 36.5% compared with January 2014. This is the minimum value since January 2011. Exports have reduced too – supply fell to its lowest since January 2012. Imports have reduced more rapidly than exports, which led to trade balance surplus.

Imports have fallen thanks to devaluation of the Belarusian rouble and tighter pricing policy. Wage cuts have resulted in reduced imports of cars from Russia. In December 2014, Belarusians imported 48,000 vehicles from Russia and in January 2015 – only 8000. Consumer spending has reduced, entailing a reorientation towards greater domestic consumption of food. Price control introduced by the government has resulted in some exporters seizing operations. Many companies have reviewed downwards their investment programmes for 2015, which has already led to a decrease in imports of equipment. Compared with December 2014, in January 2015, imports of machinery fell by USD 500 million.

Foreign trade improvements are unstable. The positive results of January have led to a sharp reduction in the range of products and problems in both, retail and whole sales. Refining and fertilizer production are among relatively stable industries in Belarus. Devaluation was insufficient to solve the problems in the food industry, mechanical engineering and rubber industry. In addition, businesses continue to have troubles with supplies to the Russian market.

Diversification of exports is now a priority task for the government, but developing new markets requires considerable time and might take years. In the short term, trade balance surplus is unlikely to sustain, however, in 2015, foreign trade performance should improve as compared with 2014 due to the economic slowdown in Belarus.

Trade balance surplus was only achieved thanks to devaluation and tough restrictive measures against imports introduced by the government. Import volumes might be restored and trade balance deficit might return to the level of USD 50-150 million per month.

 

 

 

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Growth in real wages may disrupt macroeconomic balance in Belarus
October 02, 2017 12:12
Фото: Дмитрий Брушко, TUT.BY

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.

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