The new head of the National Bank of Belarus and changes in the monetary policy
Chairman of the Board of Belarusbank Nadezhda Ermakova was appointed as the new Head of the National Bank of Belarus. Before the appointment Ermakova reported to Lukashenko, that the banking system and the foreign currency market of the country have stabilized completely:
the foreign currency exchange rates set by the National Bank reflected the reality without being constrained by administrative tools and that there was an inflow of deposits. At the same time, she said that the day before in “Belarusbank” the outflow amounted to "only" USD 360,000 and Euro 300,000 which was insignificant in her view. Alexander Lukashenko instructed the new Head of the National Bank of Belarus to reach the single currency exchange rate of the Belarusian Ruble in the near future.
The National Bank of Belarus allowed Belarusbank, Belinvestbank, Belagroprombank, Paritetbank and Alfa-bank until 1 December 2011 to buy cash foreign currency without selling it to the population via foreign exchange offices located in recreational facilities (without specifying what stands for a “recreational facility”). Currency collected that way would be sold to citizens for social purposes.
The National Bank allowed the use of foreign currency in transactions between the residents in leasing agreements. This provision is valid until 1 January 2013. In autumn 2009 the National Bank canceled the use of foreign currency in a number of operations between residents, including leasing agreements. Several months ago a number of businesses appealed to the National Bank with a request to return the possibility of settlements in foreign currency.
Regardless of other candidates being more qualified and better experts, the authorities bet on a “gray mouse”, who knows banking very well however does not understand macroeconomics. Therefore the main criterion was loyalty rather than professionalism. Obviously, Ermakova will continue the existing policy of administrative regulation and redistribution. It implies that the credit (emission) support to individual enterprises will continue, as well as the sale of foreign currency to the population for "social purposes" only (traveling due to illness of a family member or linked to a funeral, treatment or in some cases studies). The National Bank has finally lost its independence: the monetary and exchange rate policy is now determined solely by the Presidential Administration.
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.