Cheap loans only for select few businesses and industries

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April 22, 2016 18:48

The high inflation rate projected for 2014 will prevent the National Bank from lowering the discount rate to 14-16% per annum. Unaffordable corporate loans imply that the enterprises will be unable to implement the 2014 production plans. The National Bank will provide cheap loans only to those enrolled in the state support programmes, others will have no access to cheap loans.

As of April 16th, the discount rate will be reduced to 22.5 % per annum.

In Q1 2014, consumer prices in Belarus rose by 4.9%, which means that the 2014 inflation forecast at 11 % is likely to be reviewed. The 2014 inflation forecast at 16-17% would be more realistic. In order to preserve positive interest rates in the economy, the discount rate should be higher than inflation. This implies that the discount rate in 2014 will not be reduced to 14-16 % on average.

The National Bank has reduced the discount rate by 1% as a matter of concession to the Government, which demands cheaper loans to the economy. Expensive corporate loans constrain production, which, in turn, results in falling imports and contained domestic demand. As a result, the international trade situation improves, while foreign currency net purchases on the domestic market reduce in all economic sectors.

Reduced production volumes will result in failed GDP forecasts, but, given the recession in Russia, this index is no longer a priority,. Maintaining the international reserves’ volume has moved to the top of the agenda (in Q1 2014 international reserves fell by more than USD 900 million, reaching a critical mark - 1 month worth of goods and services imports). If international reserves continue to fall, the currency market may start to panic. 

A lower discount rate will have the outmost impact on the enterprises enrolled in the state programmes. In 2014, BYR 40 trillion was allocated for the state programmes, BYR 24 trillion of which will be spent on supporting agro-industrial complex. Loans issued within the state programmes are tied to the discount rate and bear benefits by partially reimbursing interest rates. For the remaining enterprises, loans will not become considerably cheaper, because the banks will preserve high deposit rates for the population to ensure cash inflow in the banking system. Therefore, throughout 2014, corporate loans will be largely unaffordable for most enterprises. 

Thus, Belarusian economy is gradually creating different economic conditions for various enterprises. The state will provide assistance to state-owned enterprises by increasing the burden on the private sector.

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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.