Belarus"s economy in 2013: Forward to the Past
On February 21st forecast data about socio-economic development in 2013 was published.
The 2013 projected data demonstrates the return of the economy to the 2010-2011 standards. The economic model will not change – the government is only choosing sources of funding to support the status quo. The period until the next devaluation will last as long as the government is able to find the required amount to keep the situation as is.
The Economy Ministry Regulation No 1, dated January 4th, 2013 and published only in the second half of February states, that the Belarus’ current account balance in 2013 is projected with deficit minus USD 5.123 billion. In 2010, the balance was negative – minus USD 8.28 billion, in 2011 – minus USD 5.121 billion. In 2013 Belarus will benefit from gas supplies at discount prices – USD 2 billion, if compared with 2011. Excluding the possible continuation of the potential diesel fuel imports for the biodiesel production and potential benefits from the agreement on the duties’ distribution, the picture resembles that of 2010.
The improvements in 2012 were temporary and mainly due to additional financial benefits from Russian oil re-export schemes. Scheme’s suspension has triggered a chain reaction in the economy, which resulted in a drop in industrial production. The foreign trade balance was therefore negative and the financial economic outputs had deteriorated. Distorted perception of the real situation in the economy was due to savings of USD 2000 million to pay for the natural gas supply. The economic recovery was a misconception and some mistakes were repeated, which resulted in the devaluation in 2011.
Devaluation effect ceased to have impact in the second half of 2012. Wage growth has exceeded the nominal value compared with December 2010. The sale of Beltransgaz and oil re-export schemes increased the gold reserves to a relatively safe level (2 months worth of imports of goods and services). However, there were no significant structural changes. The main exports are petroleum products; Belarus’ dependence on its main market - the Russian Federation, has increased; privatization efforts have been halted, the modernization de facto looks like the distribution of funds with minimal economic impact; private business operate primarily to maximize their profits due to potential sudden change in the business conditions, including the assets’ nationalization.
Thus, the economic cycle in Belarus has looped. The period until the next devaluation will last as long as the government is able to find the required amount to keep the situation as is. The government considers sales of certain assets as a last resort option. The economic model will not change – the government is only choosing sources of funding to support the status quo.
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.