Foreign debts refinancing is the only strategy for the Government
In 2013-2015 Belarus will has to repay USD 10 billion foreign debt. Belarus’s economic performance shows that the country will not be able to take care of the external debt burden on her own. In these circumstances, debt repayment is only possible via new external borrowing.
On September 26th, 2012 Finance Minister Kharkovets announced plans to place government bonds in foreign markets in 2013.
In 2012 Belarus was able to pay off some debt due to the successful trade during the first half of the year. Gross external debt decreased by USD 882.1 million, but simultaneously, Belarus is attracting foreign loans to fund various infrastructure projects. Over the next 3 years it will have to repay about USD 10 billion debt. Moreover, within a year Belarus will have to find a way to refinance USD 11.3 billion corporate and banking sector debt.
This week Belarus managed to agree on refinancing of Belaruskali debt vis-à-vis Russian Sberbank. The new term, 3 years, is not accidental. The authorities intentionally stretched the debt repayment over a long-term period hoping for the improvement of the economic situation in the future. Debt refinancing is natural, regardless of many statements about the possible early repay of the existing debt. Otherwise, the Ministry of Finance would have to use its gold reserves, while the loan was originally intended to replenish them.
The announced development strategy for 2013 shows there is no alternative development. EurAsEC ACF credit line and potential expansion to Asia-Pacific financial markets are need to refinance half of the USD 3 billion debt, due for pay off in 2013. Interest payments on foreign loans will mature in the expenditure budget. Bearing these numbers in mind, it is unrealistic to count on successful foreign trade, which is anticipated to replenish the gold reserves and at the same time to pay off foreign debts.
FDIs could be used to repay foreign debt, but unclear privatization programme and long sales procedures harmonization process do not contribute to maximizing profits from the state property sales.
In 2013 Belarus will be actively looking for external financing to repay the existing debt. Also the size of the needed funds (USD 500-600 million) is likely to increase.
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.