Foreign exchange reserves still critically low
Regardless of the following transfer of the EurAsEC loan in the near future and two more in 2012, the actual volume of foreign exchange reserves is far from the safe level.
The NBB assesses the deficit balance of payments at $ 1.4 billion and as a consequence, foreign exchange reserves in 2012 could amount to USD 6.1 billion. However two transfers within the Anti-Crisis Fund of theEurAsEC loan agreement of total USD 880 million will increase the foreign exchange reserves up to $ 7 billion. The National Bank believes this amount will close the gap in foreign deficit in 2012.
Regardless of authorities’ statements about the increased foreign exchange reserves, their real value is still far from being safe. For instance, one of the criteria of minimal sufficiency of ForEx reserves that ensures the economic security of the country is that it amounts to 3 months of imports, namely, about $ 12 billion by the end of 2012. It implies that the foreign exchange reserves should be increased by USD 4.6 billion however there are no options at the moment that would secure such an increase. Moreover the volume of foreign exchange reserves of $ 7 billion should be treated carefully, as almost half of it constitute various loans from commercial banks, ergo 1) this money is not ‘real’, 2) loans need to be repaid in the following 10-15 years.
Apart from the projected trade surplus in 2012 of USD 1.3-1.5 billion (which is not yet a fact), USD 3.7 billion is still needed to pay for the customs duties on petroleum products to Russia. In addition, substantial funds (approximately USD 5 billion) will be spent on the repayment and servicing of the external debt (USD 1.2 billion of interest on total external debt, USD 3 billion to pay off the principal debt, and USD 460 million of liabilities of the National Bank).
Therefore, in 2012-2013 the need for external financing will remain and will not reduce. Moreover, the repayment amounts will almost double. Nevertheless, the authorities are not considering the possibility of a stabilization loan from the IMF, which, apart from its financial implications, carries a meesage to investros (including investment banks) that the country has embarked on reforms and it can be dealt with.
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.