Belarusian rouble depreciation has not heated tension in Belarusian society
The Belarusian government is hoping to support exports in order to preserve its social function, i.e. ensure high employment rate. In turn, the population stands ready to waive its demand on wage-growth in exchange for stable employment. Smooth devaluation of the Belarusian rouble is unlikely to raise tension in society and lead to open discontent in the form of protests.
Since early 2016, the Belarusian rouble devalued by 16.1%. The Belarusian rouble has already depreciated by more than the government forecast for late 2016 (BYR 18600 per 1 USD).
The Belarusian rouble exchange rate has fluctuated considerably, but the National Bank has not resorted to administrative measures to regulate the foreign exchange market. In addition, the National Bank intends to prevent the strengthening of the national currency, due to the need to support state-owned enterprises-exporters. If foreign currency supply exceeds the demand, the National Bank will be ready to restrain the strengthening of the rouble by buying foreign currency in order to preserve Belarusian exporters’ competitiveness.
The depreciation of the Belarusian rouble months following the 2015 election campaign has not led to growth of tension in society. Since the last presidential elections in October 2015, the Belarusian rouble devalued by 22.5% (BYR 17202 per USD 1 on October 11th, 2015, and BYR 21 095 per USD1 on January 23rd, 2016), while the average salary in Belarus fell by more than USD 200 throughout the year (USD 619 in December 2014 and USD 412 in December 2015). Meanwhile, in 2011, a sharp deterioration in the living standards due to the deep financial crisis and a subsequent recession, has led to numerous street protests not only in Minsk, but also in other Belarusian regions.
President Lukashenka has avoided public assessments of the currency market situation and criticism of the government and the National Bank. However, he, de facto, approved measures undertaken by financial and economic authorities with reference to an informal contract with the population, which envisages ensuring minimum stability in exchange for lowered living standards requirements. “And as the time goes by, these claims will be gone, simply forgotten, and the people, as it always happens, will forgive the authorities”, he said.
The Belarusian authorities have convinced the population that the devaluation of the national currency is inevitable due to Belarus’ limited monetary and economic independence from the Russian economy and the Russian rouble.
In addition, the government is aiming to stimulate economic growth by the weakening the national currency. In 2016, the government intends to provide support to state-owned enterprises in enhancing competitiveness of their export products, as well as to restrain imports with devaluation of the rouble. The state has limited tools to provide support for state-owned enterprises so as it is negotiating a new loan programme with international financial institutions. Moreover, the state anticipates that large state-owned enterprises will help maintaining a high employment rate, one of the key elements in Lukashenka’s socio-economic model.
Simultaneously, the authorities pay special attention to maintaining social and economic stability in the capital, where they direct most resources to buy the loyalty of the electorate. Amid deprecation of the national currency, the difference in wages of workers in the regions and the capital, as well as in various economic sectors is significant. For example, in December 2015, the average salary was almost BYR 10.5 million in Minsk and only BYR 6.2 million in the Mogilev region.
Overall, gradual devaluation of the national currency is unlikely to cause tension in society and growth of protest moods if the state ensures high employment and timely salaries and pensions.
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.