Government’s efforts to create the Development Bank expedite

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April 22, 2016 17:58

The Government expedites its efforts to set up the Development Bank in order to remove the burden of funding of governmental programs from the largest state-owned banks. Functioning Development Bank is one of the IMF requirements and also an opportunity to sell part of stakes in these banks at a better price.

The government of Belarus has approved the Credit Development Bank to deal with restructuring of loans issued to state banks for financing of the sate programmes. Under the new regulation, the Development Bank will restructure debts transferred to it by the state banks via deferment (installment) of repayment of principal debts and overdue interest payments. The mechanisms of restructuring include conversion of foreign currency loans into Belarusian rubles and exemption from penalties for overdue interest payments during the period of insolvency.

Comment

The Development Bank is also an agent of the Belarusian government for servicing and repayment of external public debt and foreign borrowings guaranteed by the government, issued for funding of projects, part of the state programme. Currently the funding of state programmes is implemented mainly by state-owned banks "Belarusbank" and "Belagroprombank".

In June 2011 the President of Belarus signed a decree on the establishment of the Development Bank of Belarus with a statutory fund Br20 billion (government share is 95%, share of the NBB is 5%). The Bank will take on its balance sheet loans of state banks issued for funding of state programmes before 1st January 2011, and as of 1st January 2012 it will take over funding of state programmes. The Development Bank is also an agent of the Belarusian government for servicing and repayment of external public debt and foreign borrowings guaranteed by the government, issued for funding of projects, part of the state programme. Currently the funding of state programmes is implemented mainly by state-owned banks "Belarusbank" and "Belagroprombank".

Creation of the Development Bank and changes in the funding mechanism of the state programmes was a basic condition of the IMF, which Belarus has not complied with since the previous loan has been provided by the IMF. Today the authorities are trying to accelerate the adoption of regulations that will allow the Development Bank to perform its functions and to unload the largest state-owned banks. As soon as the burden of governmental programmes is removed from the “Belarusbank” and “Belargroprombank”, their chances for being privatized would increase (the National Bank does not hide his desire to sell stakes in these banks at a reasonable price).

 

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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.