Wage growth provokes economic crisis in Belarus

Category status:
April 22, 2016 18:33

The Statistics Committee reported that the average monthly wage in May 2013 was BYR 4,988 million (USD 575).

In Belarus, wages continue growing despite the deteriorating economic situation. One of the main causes of 2011 crisis was a sharp rise in wages in late 2010. Belarusian leadership repeats all its previous mistakes and does not recognize the systemic problems inherent in the Belarus’ economic model.

Nominal wages in May were BYR 4 988.3 million or USD 575, which is 4% higher than in December 2012, and 32% higher than in May 2012. Labor productivity in Q1 2013 increased by 3.5% over the same period in 2012, and preliminary data shows that by June it will be 2%. The situation with one of the main macroeconomic ratios is deteriorating. Labour productivity is growing slower than wages increase as a result expenses grow faster than revenues, which deteriorates enterprises’ financial performance.

In 2013 the situation is similar to pre-devaluation period in 2011. In 2009-2010 wages increased sharply, the current account payments balance deteriorated, and there was no substantial foreign funding to cover the current account balance deficit were lacking. In 2013, the current account is negative, the international trade balance in services can not compensate for the negative foreign trade balance in goods, additional guaranteed external incomes are not feasible and the domestic foreign exchange market situation is closer to net foreign currency demand from legal and private persons. All this is largely due to the increase in wages, which increased consumer imports and created an additional demand for foreign currency for the saving purposes.

Current economic situation is as follows. The economic situation is deteriorating, while the government is focused on the implementation of quantitative indicators. Enterprises’ financial condition is poor - accounts payable and accounts receivable increase, net incomes reduce, and international economic situation for most businesses is deteriorating. Against this background, wages’ growth, altogether with administrative orders to maintain a relatively stable staffing policy create an additional negative factor that will result in pumping the economy with print money, followed by pressure on the foreign exchange market, reduced gold reserves and the need to depreciate the national currency to avoid economic collapse.

A systemic problem is that the solution to the current situation is bound to a narrow circle of decision-makers, private initiative’s suppression and extremely unfavorable investment climate for investors who unable to use administrative resource to set up a new enterprise. These problems were there for many years and were never solved, putting Belarus in a vicious circle of economic cycle “from devaluation to devaluation”.

Thus, Belarus is moving along the path that resulted in devaluation in 2011. Belarus fails to analyze its previous experiences and ignores constructive criticism; ergo it is bound to repeat its own mistakes. The probability is high that in the coming 1.5-2 years devaluation will be repeated.

Similar articles

Belarusian and Ukrainian Defence Ministries entangle in confrontation spiral
October 02, 2017 11:57
Фото: RFRM

Over the past year, military-political relations between Minsk and Kyiv have become complicated. Due to their high inertia and peculiarities, this downward trend would be extremely difficult to overcome.

The root cause of the crisis is the absence of a common political agenda in the Belarusian-Ukrainian relations. Minsk is looking for a market for Belarusian exports in Ukraine and offers its services as a negotiation platform for the settlement of the Russo-Ukrainian war, thereby hoping to avoid political issues in the dialogue with Kiev. Meanwhile, Ukraine is hoping for political support from Minsk in the confrontation with Moscow. In addition, Ukraine’s integration with NATO presupposes her common position with the Alliance in relation to Belarus. The NATO leadership regards the Belarusian Armed Forces as an integral part of the Russian military machine in the western strategic front (the Baltic states and Poland). In addition, the ongoing military reform in Ukraine envisages a reduction in the number of generals and the domestic political struggle makes some Ukrainian top military leaders targets in politically motivated attacks.

Hence, the criticism of Belarus coming from Ukrainian military leadership is dictated primarily by internal and external political considerations, as well as by the need to protect the interests of generals, and only then by facts.

For instance, initially, the Ukrainian military leadership made statements about 100,000 Russian servicemen allegedly taking part in the Russo-Belarusian military drill West-2017. Then the exercises were labelled quazi-open and military observers from Ukraine refused to provide their assessment, which caused a negative reaction in Minsk. Further, without citing specific facts, it was stated that Russia was building up its military presence in Belarus.

Apparently, the Belarusian and Ukrainian Defence Ministries have entangled in a confrontational spiral (on the level of rhetoric). Moreover, only a small part of the overly hidden process has been disclosed. That said, third states are very likely to take advantage of the situation (or have already done so). This is not only about Russia.

The Belarusian Defence Ministry officials are restrained in assessing their Ukrainian counterparts. However, such a restraint is not enough. Current military-political relations between Belarus and Ukraine are unlikely to stabilise without the intervention of both presidents.