Country’s gold reserves reach critical level
Belarusian gold reserves risk to become de-facto negative if urgent privatization is not held or loans are not obtained. Therefore Belarus will have to fulfill its obligations, in particular, the three year privatization program worth $ 7.5 billion.
Approximately 74% of the national currency reserves are due the National Bank of Belarus foreign currency debt to commercial banks of the country. On 1 October the GCR of the National Bank of Belarus amounted to USD 4.715 billion, USD 3.5 billion of which is its debt to the banks. The NBB has been using SWAP transactions for a period exceeding 12 months, thereby saving the National gold reserves from drastic decline over the past years (mostly in 2010). The NBB received foreign currency loans from the banks in exchange for the Belarusian rubles on conditions very profitable for the banks. As of 1st September the loss of the National Bank from such operations reached Br 9 trillion. Under the loan agreement with the ACF of the EurAsEC Belarus has to reduce the foreign currency debt to the banks at the expense of prolongation of contracts due to expire.
On 1 October the GCR of the National Bank of Belarus amounted to USD 4.715 billion, USD 3.5 billion of which was its debt to the banks.
Belarusian gold reserves risk to become de-facto negative if urgent privatization is not held or loans are not obtained.
The National Bank expects to receive a USD 1 billion loan from Russian Sberbank, which will be used to replenish the GCR. Also Belarus hopes to receive the second transaction of USD 440 million from the EurAsEC Anti-Crisis Fund.
Therefore Belarus will have to fulfill its obligations, in particular concerning the three year privatization program worth $ 7.5 billion.
Projected budget revenues this year: USD 2.5 billion from the sale of “Beltransgaz”, from increased public transport tariffs, utility services, etc. It is anticipated that by the end of the year the population will reimburse 30% of the housing services costs and 35-40% next year (currently the population pays about 20.8% of the utilities cost). The government also plans to raise public transport fares, petrol prices, as well as to introduce differential pricing policy on water and electricity consumption.
The government will not be able to continue implementing the existing policies in the long term and a painful shock of structural reforms is yet to come.
However these measures are insufficient and the government will have to continue negotiations with the IMF on a new Stand-by Programme, which will inevitably require implementation of painful reforms in exchange for conditional step-by-step loan transfers.
Therefore the government will not be able to continue implementing the existing policies in the long term and a painful shock of structural reforms is yet to come.
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.