EurAsEC Anti-Crisis Fund continues pushing for reforms
Single exchange rate of the Belarusian ruble, tightening of the monetary policy, as well as the resignation of Russian Finance Minister Kudrin – do not guarantee loans from the ACF. It implies that the Belarusian government has to continue fulfilling the conditions set by the creditor.
Experts of the Eurasian Development Bank (EDB), the fund manager of the EurAsEC Anti-Crisis Fund (ACF), worked in Belarus from 17 to 24 September, assessing the performance of Belarus against its obligations under the loan programme. Experts praised the progress in implementation of a series of reforms, part of the stabilization programme of the Government and the National Bank, but emphasized that “Belarus also needs to tighten its monetary policy. New loans issued on easy terms to support government programs drive up inflation and the government’s expenditures on subsidizing the interest rates. Maintaining interest rates at levels lower than the rate of inflation paves the way for excessive lending to the economy and increased domestic demand”.
“Belarus also needs to tighten its monetary policy. New loans issued on easy terms to support government programs drive up inflation and the government’s expenditures on subsidizing the interest rates. Maintaining interest rates at levels lower than the rate of inflation paves the way for excessive lending to the economy and increased domestic demand”
Regardless of the introduction of the single exchange rate of the Belarusian ruble, tightening of the monetary policy, as well as the resignation of Russian Finance Minister Aleksei Kudrin (who voiced consistent criticism towards the Belarusian authorities), the government will have to continue fulfilling its commitments – to raise interest rates to the level of inflation (87% during January – October 2011 period), to reduce concessional lending, to raise tariffs for the population, etc. The authorities cannot fail implementing these painful reforms, given the country’s treasury poor condition; the government cannot afford to neglect the following transfer of USD 445 million, in particular, given that $ 1 billion loan from Russia is still under consideration. The reforms in question imply deterioration of social problems.
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.