Emission provokes inflation and devaluation
The monetary base in Belarus in January-July 2011 has increased by 35.4%. The volume of cash in circulation in January-July has increased by 57.1% to 7059.3 billion rubles.
The growth of cash in circulation resulted in growth of the “black market” exchange rate of US Dollar from Br 6300 in the beginning of August to Br 7700-8000 by 20 August. Non-cash US Dollar exchange rate increased up to Br 9000-9500 per USD.
Financial state of banks is deteriorating. The negative balance of net foreign assets of Belarusian banks on 1 August 2011 amounted to USD 5256.9 million, as compared with USD 5130.5 million on 1 July 2011 and USD 4247.6 million in the beginning of the year. In January-July gross foreign assets have increased by USD 48.7 million (3.3%) to USD 1534.5 million with liabilities growing by USD 1058.1 million (18.5%) up to USD 6791.4 million. Non-residential loans account for USD 5852.1 million of all liabilities, increasing from the beginning of the year by USD 841.1 million (16.8%). Debt on ruble and foreign currency loans is growing too. The National Bank of Belarus recommended (ordered) to the banks to ensure that their regulatory capital is increased by 15-21% by the end of 2011 and to maintain the share of distressed assets of banks in the assets subject to credit risk at the level of 8% maximum.
Continuation of the current emission policy results in the devaluation and inflation risks for the economy and affects balance sheets of the banks and businesses. However the government is yet unable to stop the emissive lending to industries and agriculture.
In the current situation it is important to exclude the National Bank’s interventions to keep the ruble liquidity of state banks and therefore to reduce the amount of financial support to the economy. Only after that one could try to achieve a single exchange rate of the Belarusian ruble. In addition, the unfolding economic crisis threatens the stability of the banking system. The banks are trying to solve the liquidity crisis via borrowing money from non-residential (parent) banks, however such policy has its natural restrictions.
The country's leadership has instructed the local authorities to raise minimum wages at enterprises by the end of 2019 to BYN 1,000, which would lead to an increase in the average wage in the economy as a whole to BYN 1 500. The pace of wage growth in 2017 is insufficient to ensure payroll at BYN 1000 by late 2017 without manipulating statistical indicators. In order to fulfil the president’s order, the government would have to increase budgetary expenditures on wages in healthcare and education, enterprises – to carry out further layoffs and expand the practice of taking loans to pay wages and restrict investment in modernisation of fixed assets. In 2010, the artificial increase in wages led to a threefold devaluation in 2011, an increase in the average salary to BYN 1500 will not match the capabilities of the economy and would lead to yet another devaluation.