EBRD plans further support for SMEs in Belarus
The European Bank for Reconstruction and Development is planning to implement five new projects in support of small and medium businesses in Belarus. Yet, the possibilities of bilateral cooperation between Belarus and the EBRD are limited because the Bank has refused to participate in public sector projects after the dissolution of the opposition protest in December 19, 2010. The implementation of political and economic reforms in Belarus is the key condition for increasing the Bank’s volume of operations in the country.
On 11 July, EBRD Director for Belarus, Moldova and the Caucasus Paul-Henri Forestier announced that the Bank is planning to implement five new projects under the program to support small and medium businesses in Belarus. This year projects in the field of information technologies, agriculture and services (network of shoe repair shops \"Yalina\") have already been implemented.
As of April 2012, the EBRD has invested 844.5 million euros while implementing 43 investment projects in the private sector of Belarus. The total value of projects, implemented with the support of the Bank, amounted to 1.175 billion euros. In 2011, the volume of EBRD investments in Belarus reached a record 194 million euros (see Figure 1).
Figure 1. Number of projects and the volume of EBRD investments in Belarus in 2001-2011.
In 2012 the EBRD will continue to support private sector development of the Belarusian economy. The bank is currently involved in negotiations with regard to the provision of debt financing and participation in share capital of private companies.
In the second half of 2012 the Bank will prepare a new three-year country strategy for Belarus, which will be adopted by the Board of Directors of the Bank at the end of this year. The current strategy of the Bank was adopted on December 10, 2009. Originally, the document provided for the possibility of cooperating of the EBRD with the authorities of Belarus in the sphere of privatization of state assets.
However, after the dissolution of the opposition protest on December 19, 2010, the Bank \"calibrated\" the existing strategy and refused to cooperate with the Belarusian authorities (including participation in government projects and cooperation with the state-owned banks).
Carrying out political and economic reforms in Belarus would allow to return to the previous plans of bilateral cooperation, and thereby significantly increase the volume of operations of the Bank in the country.
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.