Authorities continue searching for currency sources
In late July Belarus plans to attract a $ 1 billion credit for the supply of potash fertilizers or for assets of Belaruskaliy, said Vice-Premier Vladimir Semashko.
Vladimir Semashko added that the inflow of foreign currency could be secured via placing public offers of shares of large domestic companies on foreign stock markets. In particular, with the “Deutsche Bank” they are investigating opportunities to place IPOs of BelAZ on foreign stock markets.
Vice-Premier Anatoly Tozik met with Vice Minister of Commerce of China Chen Jian and said that the swap agreement which was signed two years ago should be implemented with greater effort: back than Belarus and China swapped USD 3 billion of the national currencies.
The country needs an urgent influx of foreign currency. In January-May 2011 the requirements of commercial banks in foreign currency to the central bank increased from USD 531.7 million to USD 4.538 billion by 1 June. In the meanwhile the gold reserves calculated by the IMF standards went down by USD 1.438 billion in January-May and reached USD 3.593 billion, which is the lowest since 1 September 2009. The foreign currency liabilities of the National Bank to the banks exceed the volume of the international reserves by USD 944.8 million. In other words, the National Bank does not have sufficient funds for one-time payment for current liabilities to the banking sector, which casts doubt on the ability of the National Bank to discharge its liabilities in foreign currency in a timely manner.
Due to the lack of money, the country finds itself in a virtually “pre-default” state. The authorities need to find funds in the amount of approximately $ 5 billion urgently (before October). There are only two sources of revenues: new loans and privatization. The authorities work in both directions, however it is clear that the conditions put forward by the President are not satisfactory for the potential investors and creditors. Moreover, all representatives of the highest authorities (Lukashenko, Makey, Myasnikovich, Semashko and others) talk about some potential revenues and transactions in order to reduce stress and reassure investors and the population.
Accordingly, the government continues its difficult negotiations and at the same time it adopts a directive related to distribution of foreign currency earnings in the country and actively uses other administrative tools. The authorities try to tighten the monetary and fiscal policy (demands put forward by Russia and the IMF), as well as to fulfill the requirement of the IMF concerning the single exchange rate. The IMF yields for a single exchange rate as a requirement for granting a new loan, while the authorities plan to come to a single exchange rate by the end of 2011 (Br 5,000 per USD) and they need the loan to maintain the exchange rate at the level established by the National Bank.
It is obvious that this year IPOs will not be held: as a rule their preparation requires a couple of years. Possibility of a USD 1 billion loan under the condition of future privatization of Belaruskaliy or supply of fertilizers is questionable and denied by the Russian investors. Therefore, given the absence of privatization deals, investors have every reason to doubt the medium-term solvency of the country.
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.