The government plans to reach a balanced exchange rate in October
The Government and the National Bank expect to eliminate the multiplicity of exchange rates in October, with a balanced exchange rate at a level between the current official and the market rates. Thereby they hope to resume negotiations with the IMF on a new stabilization loan.
The Government and the National Bank expect that the multiplicity of exchange rates on the Belarusian foreign exchange market will be eliminated in October, with a balanced exchange rate at a level between the current official and the market rates. This will restore the confidence in the Belarusian ruble, which, in turn, should affect the inflow of deposits to the banks and those funds could be used for loans to the state programmes.
The Vice Premier said that the main stumbling block during the discussion of the new program was the lack of user-friendly exchange rate, which prevented Belarus from beginning of full-fledged negotiations. Mr. Rumas assured that with the opening of the supplementary trading session on the BSCE, this problem would be solved and added that the IMF welcomed the measures undertaken to counteract multiple exchange rates.
This was announced at a press conference on 21 September by Deputy Prime Minister Sergei Rumas. In addition, Belarus intends to intensify negotiations with the IMF on a new Stand-by programme. For instance, the government delegation flew to Washington to attend the annual meeting of the IMF and to negotiate the assessment of the macroeconomic situation in the country. The Vice Premier said that the main stumbling block during the discussion of the new program was the lack of user-friendly exchange rate, which prevented Belarus from beginning of full-fledged negotiations. Mr. Rumas assured that with the opening of the supplementary trading session on the BSCE, this problem would be solved and added that the IMF welcomed the measures undertaken to counteract multiple exchange rates.
The Government needs the IMF loan in order to maintain the gold reserves at an adequate level, and for external guarantees. The loan will bring down the current high rate of the Belarusian Eurobonds, and will help to return deposits into the banking system. Moreover, it could act a “safety cushion” while negotiating with investors the privatization of Belarusian assets on equal terms (currently a number of investors, primarily Russian, have stronger negotiating position).
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.