Credit portfolio of commercial banks deteriorated
Decree № 306 provides for the reimbursement of costs to agro and processing enterprises for purchasing crops in 2011 in the total amount of Br 2.8 trillion.
The share of “troubled” loans in the credit portfolio of the Belarusian banks increased up to 1.18% by 1 June 2011 as compared with 0.94% of 1 June 2010, the overall amount increased in January-May 2011 by 2.5 times, up to Br 1.714 trillion. The part of overdue debt was 52.8% on June 1, against 25.1% at the beginning of 2011.
In January-May 2011 the Belarusian banks increased their credit portfolio by 36.4%, up to Br 145.814 trillion.
Economic and monetary crisis has only started affecting commercial banks. Due to the state’s policy of shifting of financial burden partially on concessional financing and subsidizing of the Belarusian economy by commercial banks, as well as its unwillingness to cease concessional financing of agriculture and housing, the financial state of commercial banks will continue deteriorating gradually. A lot will depend on population’s confidence in the existing policies. If the trend with withdrawal of foreign currency deposits continues, it is possible that by autumn-winter a large-scale banking crisis will unfold. The largest state owned banks: Belarusbank and Belagroprombank are at highest risk in this regard.
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.