Outcomes for 2015, Forecast for 2016

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April 22, 2016 19:39

Outcomes for 2015: a deep recession and dim prospects for economic recovery

Forecast for 2016: conservation outguns innovation

Most important trends in 2015

  • Conservation of the socio-economic model
  • Increased demand for systemic transformations in the Belarusian society, especially in the economy
  • People’s expectations of the state’s social protection lowered
  • The state cut social guarantees to the population
  • Some political elite acknowledged recession and the need for reforms
  • The government divided into supporters of market reforms and antireform conservatives
  • Reduced capacity for mobilisation for both, the authorities and the opposition
  • Cautious neutrality in foreign policy
  • Minsk earned a reputation of a peacekeeper
  • Enhanced attention to national security

Main threats in 2016

  • Tensions and protest moods in society will rise due to falling living standards and a cutback on social protection
  • Deeper economic recession due to the lack of political will to reform the existing socio-economic model
  • The Kremlin will step up pressure to deploy a Russian military air base in Belarus in exchange for financial aid and loans
  • Amid dwindling state resources and fewer opportunities to distribute budgetary and export flow of funds, conflicts in nomenclature and state sidekick businesses will mount
  • Minsk and Brussels will exhaust potential for reciprocal concessions in the process of Belarusian-European normalization

Most likely trends for 2016

  • The state will imitate reforms in order to obtain external financing
  • The likelihood of real economic reforms will depend on oil prices’ dynamics
  • The state apparatus will step up the struggle for the redistribution of resources
  • The opposition will reshape before the parliamentary elections
  • Minsk will anchor its peacekeeping reputation and neutrality on the international arena
  • Belarus will evade direct involvement in inter-state conflicts on the Russian side
  • The authorities will abandon practices of supporting employment at any cost
  • Industrial production capacity will continue to reduce

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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.