Smuggling to rescue Belarus’ international trade
In January – May 2014, the foreign trade deficit persisted, regardless of some improvements, compared with 2013. The slump in production has resulted in reduced commodity imports and, consequently, Belarus’ gross imports. International trade indicators might improve due to potash sales and new trading schemes for petrochemicals.
In January-May 2013, the trade balance deficit was USD 1.6 billion. In January - May 2014, Belarus’ foreign trade deficit was USD 0.7 billion, i.e. there was a certain improvement over the previous year. These improvements were due to shrinking imports of goods, compared with Belarus’ exports. Exports reduced by USD 0.36 billion compared with 2013, while imports – by USD 1.2 billion. The state of affairs in the Belarusian industry explains the above-mentioned misbalances.
Imports have curtailed mainly due to the industrial sector. Imports of internal combustion engines for trucks, ferrous metals, natural gas, and equipment for modernisation have reduced. Simultaneously, imports of consumer goods have increased. Higher incomes have resulted in an increase in imports of fruits, vegetables, fish, dairy products, and confectionery. The state is trying to fight against consumer imports with licensing and other restrictions, but their efficiency in the context of an open border with Russia, is low. Foreign trade has improved due to the growth in sales of potash and compound fertilisers on foreign markets.
In its attempts to overcome the international trade deficit, the Belarusian government lays its hopes on potash sales and on the petrochemicals. Belarus has managed to restore oil product sales (up to 2013 standard), and increased exports of bituminous mixtures and antioxidants. The latter are exported to the United Kingdom and might be a modification of the solvent and lubricant schemes, used in 2011-2012. Back then, these schemes enabled Belarus to report about foreign trade surplus in goods, for the first time in several years. In 2014, the export scale is more modest, but given the growth in potash sales and provided that restrictions on imports remain in place, Belarus might reach a surplus in international trade.
Now the main issues is whether Russia agrees to these schemes, which is quite likely, due to the agreement reached within the Common Economic Space and further integration processes.
Thus, Belarus’ foreign trade has demonstrated some improvements, at the cost of production slowdown in some industries. Before the year end, Belarus might achieve the international trade surplus, if she continues to sell potash fertilisers on foreign markets and increases supplies of petrochemical products through new ‘innovative schemes’.
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.