Wages will grow and consumer imports restrictions will increase

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April 22, 2016 18:32

On June 12th, Minsk City Executive Committee Chairman announced the strengthening of the import substitution policy in retail sales.

Active growth in consumer imports is due to increased real economy wages. Against the background of common economic space formation, curbing the wages growth results in labour outflow to Russia. The government addresses the problem by restricting access to foreign-made goods to make Belarusians buy domestic consumer goods.

Nominal wage in April 2013 was BYR 4 888.3 thousand and increased by 50.3% compared with April 2012. Even with inflation adjustments wage growth is impressive - real wages have grown by 24.2%. Greater incomes resulted in consumer imports growth. According to the National Statistics Committee, in Q1 2013 consumer goods imports were USD 1 589.2 million, and increased by 33.6% or USD 399.3 million compared with Q1 2012. Retail trade statistics shows that consumer preferences shifted in favor of imported refrigerators, washing machines, televisions, imported alcohol and fruit. Domestic consumer goods do not satisfy all consumers’ preferences, especially in terms of the high-quality goods in middle and high price range.

The average monthly wage in April 2013 in Belarus was USD 565, in Kazakhstan - USD 698, in Russia - USD 920 (calculated by National banks’ exchange rates). Belarusian specialists do not Kazakhstan as an attractive labour market, but given the wage gap, Russian labor market is particularly attractive for various specialists. Labour outflow to Russia from Belarus indirectly could be assessed by using official data on wages’ wire transfers to Belarus. If in 2011 USD 240 million was transferred to Belarus, by late 2012 the figure was USD 286.9 million. Please note, that the official data do not reflect the full picture due to greater popularity of cash transfers.

Belarus faces the choice dilemma. On the one hand, Belarus needs to raise wages in order to prevent the labour outflow, but it cannot increase wages significantly, since the economy already cannot cope with current payments and further wage increases could speed up the devaluation. On the other hand, Belarus cannot effectively restrict imports, due to open borders with Russia and potential claims from partners in the Customs Union. Therefore the government will implement tacit restrictions when there are no formal restrictions, but indirectly various assortment lists are formed with a share of domestic goods; or either oral or written orders would be issued to increase domestic products’ assortment in retailers. In the future, the most likely measure would be the introduction of preferential consumer loans for the population, available for domestically made appliances only.

Thus, Belarus will use the 2009-2010 tactics, when wage growth was a necessary measure, and imports were restricted unofficially. In the short-term, the consumer imports growth situation will hardly be solved, due to the domestic industry limited capacity to meet the increased consumer demands.

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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.