Funding of state programmes
On 21 June Alexander Lukashenko has signed a Decree No 261 concerning the “Establishment of the JSC “Belarusian Bank for Development”. In 2011 – 2015 commercial banks of Belarus are asked to participate in the concessional lending to agricultural producers of Belarus (Decree No 256).
The government has taken a step forward towards formal implementation of obligations assumed within the IMF Stand-by Arrangements.
One of the conditions within the previous arrangements that were not fulfilled by Belarus was to set up a specialized agency for funding of state programmes (as well as competitive privatization of strategic assets).
Currently the two largest state banks: “Belarusbank” and “Belagroprombank” provide funding to state programmes.
With the creation of a new banking structure the entire system of financing of state programmes will be changed: the new institution will administrate all loans allocated for funding of state programmes.
The fact that commercial banks were invited to participate in financing of state programmes shows that the “Bank for Development” is a pro forma institution and that the government does not intend to cut down costs of the state programmes.
The decree neither lists banks, nor sets the amounts of loans to be issued by them. However, given the poor state of the majority of agricultural enterprises, commercial banks are unlikely to agree voluntarily on the participation in such programmes. Quite often “recommendations” bear obligatory nature in Belarus.
All in all, there is a significant progress in tightening of the monetary policy and in the desire to increase transparency and profitability of the state-owned banks.
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.