Belarus intensifies cooperation with China

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April 22, 2016 18:00

Chinese government decided to provide Belarus with a soft loan of USD 1 billion, as well as with Yuan 70 million of a gratuitous grant. Chinese money can be spent on the modernization of factories and infrastructure, for implementation of a multi-vector privatization policy and to demonstrate competition.

A Chinese governmental delegation visited Belarus. As a result of the visit a series of agreements on the establishment of Sino-Belarus industrial park, on economic and technological cooperation have been signed by the governments, as well as a framework agreement between the Government of Belarus and the Export-Import Bank of China on financial cooperation in the area of privatization and attracting Chinese investments to the Republic of Belarus in 2011-2012, inter alia, a number of investment agreements.

The Chinese government decided to provide Belarus with a soft loan of USD 1 billion for implementation of the existing joint projects, as well as with Yuan 70 million of a gratuitous grant.

Comment

The authorities are trying to diversify portfolio of potential investors in the privatization process.

Belarus needs the loan money for the modernization of industry and infrastructure. Therefore regardless of the fact that the Chinese loans are conditional their importance should not be underestimated. The authorities are trying to diversify portfolio of potential investors in the privatization process. Regardless of everything, Russian investors are trying to bring down the prices for the Belarus assets, buying small objects in the regions. China may become a competitor, allowing keeping the prices up. However, the dependence of the Belarusian leadership on Russia is too significant, challenging the efficiency of the Eastern dimension.

 

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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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