VTB Bank issues bridge loan to support Belarus’ international reserves
In early May, President Lukashenko announced that Russia would issue a USD 2 billion loan to Belarus. Until all relevant procedures are harmonised and finalised, Belarus’ ‘safety cushion’ will be a USD 1 billion bridge loan from VTB-Bank. This amount covers Belarus’ needs in servicing public and domestic debt without resorting to Belarus’ international reserves.
On May 30th, the authorities announced that a USD 1 billion bridge loan would be provided to Belarus by Russia’s VTB Bank.
In early May, after a meeting in Moscow, President Lukashenko announced that Russia would allocate a USD 2 billion intergovernmental loan for Belarus. The loan was planned to replenish the gold reserves. The loan was scheduled to be allocated in May 2014. Belarus is in great need for speedy disbursement due to the languishing international reserves. Since early 2014 the international reserves have shrunk by USD 1.17 billion and as of May 1st, amounted to USD 5.5 billion.
The loan has been announced without taking into account the intergovernmental approval procedures in Russia and Belarus. Ten to fourteen days is the minimum possible term for the VTB loan to be allocated after coordinating all technical procedures. The procedures for allocating an intergovernmental loan are even more lengthy due to the need to amend Russia’s state budget. Therefore, the USD 1 billion loan from VTB-Bank was needed until the intergovernmental approval procedures were finalised in Belarus and Russia. In December 2013, Belarus received a USD 450 million loan from VTB Bank for a six-month period. The loan’s repayment term will be prolonged until September 2014, which might also imply the date for allocating the USD 2 billion loan from Russia.
The prolonged loan agreement with the VTB Bank will reduce Belarus’ short-term needs for foreign currency, and the expected USD 1 billion loan will allow her to prepay the IMF loan and other loans in Q3 2014. The USD 2 billion loan from the Russia’s government will be spent on repaying two VTB Bank’s loans (USD 450 million and USD 1 billion), and the remaining part will be deposited in the international reserves.
Yet allocating the remaining portion of the EurAsEC Anti-Crisis Fund’s loan – USD 440 million – has not been resolved. If Belarus fulfils all the requirements for the remaining tranche, the loan will be disbursed. However, to date, she failed to fulfil the main requirement, i.e. to privatise some Belarusian enterprises in favour of Russian companies.
The VTB Bank’s loan is an intermediate technical solution in order to maintain Belarus’ gold reserves until internal procedures for the Russian USD 2 billion state loan are harmonised. If Belarus decides to privatise one or several assets in favour of Russian companies, she may also count on the final tranche from the EurAsEC Anti-Crisis Fund (USD 440 million).
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.