Funding of state programmes
The launch of the Development Bank should improve the effectiveness of state support programmes and, consequently, the macroeconomic stability in general. However, it is likely that industry lobbyists will accommodate the new rules of financing of state programmes to fit their needs.
A joint Resolution of the Government and National Bank No 14/1 of January 5, 2012 approved the terms and conditions of financing of projects, listed as state support programmes by the “Development Bank of Belarus”. The document stipulates the Development Bank will fund the state programmes on its own behalf and at its own expenses.
In this regard the statement of the Chairman of the Board of the National Bank Nikolay Luzgin speaks for itself, “Certain stabilization makes some business executives and government officials feel euphoria and complacency. They start applying for all sorts of programmes, construction sites, irrelevant of their cost recovery in foreign currency. They start applying for loans, naturally for preferential ones, via the state programmes. However the situation remains rather complicated”.
The Banks’ priorities include loans for state programmes for housing construction in rural areas, agricultural development, the creation or development of high-tech industries. The volumes of funding within these state programmes, and sources of funding are defined in the draft budget of the Development Bank in compliance with the annual plan of financing of state programmes, which is determined by the Government.
However, the document emphasizes that the decision on funding of projects listed in the state programmes should be taken directly by the Development Bank and in the case of an outstanding debt of an applicant to the Development Bank regarding loans issued previously, new loans will not be granted. The Bank also has the right to suspend loan transfers under previously signed contracts.
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.