Warehouse stocks still high, government orders are unrealistic
Persistent demands by the president and government to unload warehouses lead to statistics being manipulated and reductions in stock being reported on paper only by enterprises. Warehouses cannot be unloaded because the president and government are demanding for production volumes to increase while demand for Belarusian products is falling.
In October 2013, stocks increased by BYR 1031.5 billion. As of November 1st stocks were worth BYR 29.11 trillion or USD 3.16 billion. Since January 2013 stocks increase was worth USD 570 million. It was anticipated that on January 1st, 2014 the stocks’ worth would be no more than on January 1st, 2013.
Moreover, the real situation with stocks is worse than official statistics suggests. Enterprises use various ways to demonstrate that their stocks have reduced. Stocks are distributed among retailers. Stocks are sent off for secure storage to other regions or to dealer’s warehouses in Russia. Another way is to use the term ‘incomplete production’ in the reports, when an almost-finished product is not in working condition and so is not reported as stock (popular in mechanical engineering).
Stocks built up due to economic miscalculations by the authorities both, for domestic and foreign markets. The situation is aggravated by the existence of quantitative production plans adopted by the central government. The government holds enterprises responsible for not fulfilling these plans, while it is the government which drafts these unrealistic economic plans. As a result, enterprises start cooking the books, because the government is not ready to adjust its plans.
Thus, the government refuses to accept the current market changes and shifts the responsibility for the failure to meet the projected indicators to enterprises. The government should reconsider its policy and pay more attention to quantitative indicators, not qualitative.
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.