Deteriorating foreign trade is the Belarusian economy’s biggest problem

Category status:
April 22, 2016 18:21

Foreign trade balance was negative in September. Negotiations about crude oil supply resulted in nothing, which increased uncertainty about oil derivatives exports, the main Belarusian product. Negative outlook on a number of export products may cause problems on the foreign exchange market with the situation deteriorating in 2013.

On November 2nd, 2012 a discussion about Belarusian goods export took place.

On October 30th, 2012 data on merchandise trade in September was published. The balance was minus USD 358 million. The main cause behind the fall was a significant decrease in the export of Belarusian goods against less significant reduction in imports.

So far the Government addressed the problem by increasing physical export volumes to the traditional markets and lowering prices for Belarusian goods. Against this background the abolition of minimum indicative prices for exported beef and pork was a forced measure. Belarusian meat and meat products lost competitiveness in the Russian market. Increased (or even maintained at the same level) export revenues from meat are only possible at lower prices. One of the largest exports among food products will experience increasing pressure from the EU because of Russia’s WTO accession and a number of reduced duties.

The founding of the Export Council, which consisted of a number of significant figures in Belarusian private business was a decorative measure, demonstrating the size of the problem. The Belarusian government has no idea how to address these problems and tries to use decorative formations to demonstrate some activity.

Now the focus is on the negotiations in Moscow about oil supply in 2012 -2013. The lack of result implies that Russia has taken a very tough stance after the solvent-lubricant scam. In October oil supplies were cut down, despite Belarus’ assurances about potential increase in oil supply to reach the previously agreed volumes. Oil deliveries for 2013 have not been agreed yet.

Problems in foreign trade impact the entire economy. The National Bank has to take measures to substantially reduce lending to the real sector. Rates on the interbank market are prohibitive for most businesses. If carried out, privatization will replenish the gold reserves, and will not solve the forex market problem.

Thus, the government is in a difficult situation. Problems with export require short-term solutions, but in some cases, the situation is not dependent on the government, for instance, with potash exports. In other cases, prices need to be reduced, which is challenging due to costly production. If the government undertakes no effort, the situation could deteriorate and foreign exchange market could become imbalanced. However, that is the most probable solution the government will implement – wait and hope for the situation to resolve on its own accord.

Similar articles

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.

Recent trends