Looking for USD 2 billion for modernization

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April 22, 2016 18:27

On March 15th, 2013, Russian Finance Minister confirmed the Belarus’ request for a USD 2 billion loan.

Belarus’s economy balanced development is impossible without external support. Modernization is considered a way out of a devaluation loop. Belarus plans to gain funds via new concessional loans and ad hoc assets’ sales.

On March 15th, 2012 balance of payments data was published. In Q4 international trade in goods and services was negative. In Q4 2012 the current account deficit was USD 1.775 billion. Russia’s support - reduced natural gas supply prices somewhat improved the situation, but in order to maintain the current consumption level, Belarus needs international loans in pecuniary or commodity form.

Production modernization could help to solve the problem. Additional investment imports for the modernization in 2013 are estimated at USD 1.6 billion. The National Bank is skeptical about the feasibility for a new IMF loan, which could provide the necessary funds at a preferential interest rate (IMF loans interest rates range around 4% pa).

Bearing this in mind, Belarus requested a new loan from Russia. It is assumed that by the end of the modernization Belarus will reduce the imports volumes in woodworking, engineering, petrochemical industries and will improve export opportunities, which will result in improved international trade balance and will generate the foreign exchange inflow sufficient to service the public debt. Russia’s international reserves as of March 1st, 2013 were USD 526 billion and USD 2 billion is insignificant amount. However, if Russia decided to open a new credit line for Belarus, it would furnish it with additional terms related to privatization. Some Belarusian assets, put up for privatization, oil refinery in particular, have a limited number of buyers. The sale of other assets is complicated by excessive demands by Belarus, both in financial terms and in terms of guaranteeing certain social benefits to enterprises’ employees.

Thus, Belarus resumed to searching for international loans to sustain current operations. Deeper involvement in the integration processes, both in financial and economic terms, has narrowed the number of potential donors to a single country, which weakened Belarus’ negotiating position and forced to start negotiations about the sales terms for some enterprises. Belarusian authorities do not have any trump cards left for the forthcoming negotiations, other than continued membership in the Customs Union.

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Growth in real wages may disrupt macroeconomic balance in Belarus
October 02, 2017 12:12
Фото: Дмитрий Брушко, TUT.BY

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.

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