Government seeks who to blame for the failure to meet GDP growth forecast

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April 22, 2016 18:32

On June 14th, the government met to discuss socio-economic development performance in January-April 2013.

GDP growth pace in January-May 2013 slowed down to 101.1%, implying there are no chances to meet the GDP growth forecast for 2013. The negative economic situation forces government to consider who to blame for the economic failure. Under these circumstances, the probability of making controversial decisions which cannot improve the situation in the economy and make it worse, is increasing.

According to the National Statistics Committee, in January-May, GDP growth slowed down to 101.1% from 102.5% in January-April 2013. Industry is the main source of troubles in the Belarusian economy. In January – May 2013 production dropped by 3.5%. In May, the overall negative economic trends were complemented by a dramatic deterioration in the economic situation at Belaruskali – industry’s main driver in 2013. Belarus’ exports situation is not improving. As a result, the GDP growth forecast for 2013 will not be implemented.

Since the forecast will not be implemented, the government starts looking for a scapegoat. Industry explains the drop in production by external factors and expensive loans, the National Bank cannot lower the discount rate rapidly due to the potential increased demand for the national currency, which is undesirable because of the economy’s limited crediting opportunities. The Economy Ministry complains about poor diversification of Belarusian exports and proposes to set export plans using natural indicators. Instead of improving coordination among all ministries and agencies, the government starts looking who to blame for the economic failures by the year-end.

The situation affects coherence of managerial decision making. To unload warehouses, enterprises require greater independence to adjust their industrial production to meet the demand in different markets. The government ignores enterprises’ needs and requests them to reduce production stocks while increasing production. The National Bank is under pressure to lower loans’ interest rates, but that will increase the risks for the foreign exchange market and will reduce the growth rate for individual and business deposits. As a result, inflation will increase and gold reserves will drop. Simultaneously, everyone understands the importance of maintaining the international reserves at a certain level and is bound by the need to curb inflation.

The best option would be to abandon the GDP growth plan in favour of the balanced economic development. However, the president demands the forecast’s fulfillment, which may increase the negative trends in the economy.

Thus, the government is not focusing on mitigating the negative trends in the economy following downward trends in the foreign markets, but seeks who to blame and punish for the inevitable economic failures. Such attitudes strengthen crisis trends that may result in devaluation, as in 2009 and 2011.

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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.