Strict Monetary Policy to Solve Economic Problems – Belarus Economy Digest
According to official forecasts, an improved climate for foreign trade and accelerated economic growth await Belarus in 2014. The growth of the country's negative trade balance in 2013 created additional pressure on the foreign exchange market and the dynamics of its foreign reserves.
Improving the efficiency of the manufacturing sector remains one of the main objectives of economic policy. Officials plan on carrying out measures to stimulate the growth of industry and to reduce the stocks of manufactured goods.
In 2014 a strict monetary policy on the part of the National Bank will address the problems in the economy. The gradual decline in interest rates will occur by maintaining the profitability of ruble deposits. Changes in refinancing rates will depend on the rate at which prices grow. Furthermore, the National Bank will limit any rises in excessive financial lending.
Decline in foreign trade and growth of a negative balance
According to preliminary information of National Statistical Committee of the Republic of Belarus, foreign trade turnover was reduced by more than 13 per cent in 2013. Improvement in foreign trade is one of the priorities for the Belarusian economy. In 2013, positive trends in this field failed to achieve the results desired.
Over the previous year exports declined at a faster rate than imports. A negative trade balance in goods amounted to -$5.6bn or 8.1 per cent of nation's GDP. A positive trend in 2013 was seen with the expansion of foodstuff exports. Due to an increase in external sales of meat and dairy products, exports in this commodity group grew in comparison to the previous year.
At the same time the trade balance in the group of non-food consumer goods deteriorated and was, in the end, negative. Rapid income growth, including imported consumer goods, stimulated the population's consumption. The cessation of exports of solvents and dilutents, a reduction of potash fertiliser exports and the growth of enterprises' operating costs contributed to the growth of Belarus' negative trade balance.
The main trading partners of Belarus were the Russian Federation and the EU. It is noteworthy that in 2013 there was an increase in Belarusian exports to Russia with a simultaneous growth in imports from the EU. Traditionally, Belarus buys machinery, equipment and consumer goods from the EU. This trend, however is not prevalent with Russia, as Belarusian enterprises from the manufacturing sector supply their own goods to the Russian market.
The total balance of goods and services may obtain a positive balance and could equal 0.1 per cent of Belarus' GDP in 2014. This growth will become possible if there is an increase in the volume of Belarusian exports and a more moderate growth in its imports. A supposed augmentation in the exporting of petroleum products, potash fertilisers and food products may play a positive role in helping the economy develop in this direction.
Any significant results in the foreign trade arena depend on developments with real incomes, as well as any fluctuations of the Belarusian ruble against the currencies of its major trading partners.
High stockpiles of goods and low production volumes
The issue of overstocking remains one of the main issues of the Belarusian economy. In 2013, while there were decreasing production volumes, stocks of finished goods piling up in warehouses exceeded norms. For the entire year industrial output fell by 4.8 per cent. The greatest decline occurred in the petrochemical industry, publishing industry, metallurgy and the production of vehicles.
At the same time, year-end stocks against the average monthly production volume amounted to 70.2 per cent. In accordance with the predicted values, stocks were not to exceed 65 per cent of the monthly production volume until the end of the year. However, this was not what transpired in the end. In several industries, like textiles and clothing production, leather production, machinery and equipment, manufacturers built up substantial stockpiles of their goods and were unable to sell them on the market.
In 2013, difficulties in production and the sale of Belarusian products, both on domestic and foreign markets, led to the deterioration in the performance of its enterprises. Revenue growth and the profit margins of enterprises witnessed steady declines, and the total number of unprofitable enterprises increased.
Improved competitiveness for Belarusian manufactured goods, as well as the strengthening of foreign trade relations will foster the normalisation of the situation in the real sector. The unloading of stocks with growing production volumes will contribute to the improvement of the country's trade balance.
In January, the National Bank announced that in 2014 it would follow a strict monetary policy. This means that lower interest rates will occur gradually with consideration being made to preserving the profitability of deposits in the national currency. The dynamics surrounding the refinancing rate will depend on changes in prices in the economy.
The reduction of refinancing rates was halted back in June 2013. Its value has remained unchanged up until the end of February 2014. Monetary policy is one of the tools that may improve the situation with foreign trade and reduced inflation.
In 2014, the National Bank will pay particular attention to the growth rates of credit. In accordance with plans for 2014, the terms set for banks issuing credit should not increase more than 16-19 per cent. At the same time, this requirement applies to credit given both in national and foreign currencies.
In 2013, while maintaining high interest rates on ruble credits, enterprises preferred to receive them in hard foreign currency. By the end of 2013 more than half of the credit given to companies and enterprises accounted for lending in foreign currency. Very often companies were able attract credit for projects that did not provide any earnings in the form of hard currency. This fact created additional pressure on the foreign exchange market.
In order to stabilise the situation, the National Bank in January 2014 issued a resolution according to which banks may grant credit with foreign currency to enterprises only for payments to non-residents in foreign trade operations. Earlier restrictions applied only to short-term loans.
Belarusian enterprises could attract long-term loans for payments with both residents and non-residents. Restrictions on lending in a foreign currency, as well as the gradual reduction of interest rates on ruble lending should increase the share of ruble credits in the national bank’s overall portfolio.
Anastasiya Luzgina, Belarusian Economic Research and Outreach Center (BEROC)
This article is a part of a joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC)
Labour Market in Belarus: the Demand for Workers is Increasing
A recently published report by the HeadHunter recruiting agency and TUT.by portal shows that the labour market in Belarus is starting to recover. Increasing demand for skilled wokers in the entire country has stopped the stream of labour emigration of Belarusians to Russia and the West.
However, the recovering labour market has not cured itself of its old illnesses. The state-run economy uses its financial and human resources inadequately and limits potential growth. While building industry demands people, many manufacturers need to fire some.
Employment services in Belarus work so inefficiently that unemployed people do not even bother applying to them when searching for work. The average unemployment benefit in Belarus is 10 times lower than in neighbouring Poland – with Belarus offering only €15 a month.
The Belarusian economy requires modernisation in its legislation and the create of a linkage for wage growth and production growth. According to the Ministry of Economy in 2013 the gap between the growth in productivity of labour and wages was about 16.4 per cent.
The authorities should pay particular attention to the state's employment services and vocational training institutions. The experience and assistance of the European Union would greatly relieve the long overdue, painful economic reforms that Belarus has yet to undertake.
Labour Market Recovery
According to the study by the HeadHunter Recruiting Agency and TUT.by portal, the number of vacancies in Belarus grew by 40% in 2013. The demand for workers is still growing and not only in Minsk, but also at the regional level. This indicates that the labour market is beginning to recover after years of crisis.
The data shows that most Belarusian companies need skilled workers in sales and employees in the branches of transport, logistics or finance. Belarus is still experiencing a boom in programming, and as a result many IT companies are still looking for new employees. Not only programmers but also other staff: administrators, accountants and copywriters.
Companies have unexpectedly had a large demand for workers with experience of one year or less. Typically, these workers would be willing to work for wages less than $500, a figure that is attractive to potential employers.
The rapid growth of salaries, with the huge gap between it and the growth in productivity, made many Belarusians reconsider their plans to leave Belarus for working in neighbouring countries. While in 2011-2012 many construction workers, doctors and managers left to work in Russia, today many people are able to stay and find comparable work for a reasonable wage.
The weak competitiveness of the Belarusian labour market contributes to this. According to TUT.by, at any given time in Minsk two people are competing for one position, while in Moscow, the destination point for many Belarusians, has around three people applying for each opening.
Skewed Labour Market
Although the labour market is starting to recover from the financial crisis of 2011, it contains the same diseases it had before the crisis. The state-run economy, with its inadequate assignment of the financial and labour resources across sectors, dissuades employees from using their full potential. It limits their professional growth and as a consequence, the growth of the manufacturing and production in the country.
While many sectors of the economy require more workers, some of them are facing a rather different problem, as they need to lay off many of their employees to improve competitiveness. For one thing, Belarus needs more construction workers, as many of them have moved to Russia where work was readily available and wages were higher.
On the other hand, state-run companies do not need nearly the number of administrators that they currently possess, especially when it comes to redudant positions such as those that are part of the ideological staff.
Work in Belarus remains a social tool whose purpose is to maximise employment and preserve the ideology of equality between all people. A kindergarten teacher, who has a great amount of responsibility on their shoulders and works hard, earns about the same as an electrician who works a few hours a day, changing light bulbs and doing simple routine repairs.
The Gini coefficient in Belarus, the index of the inequality of income distribution in society, remains better than in all its neighbouring countries and approaches its Scandinavian counterparts.
Many Belarusians appreciate the domestic economic model, but it is difficult to question the fact that, overall, the economy remains very inefficient.
Belarusians who work for government-run enterprises remain immobile and unmotivated, though private businesses tend to do better. Which is the reason why young people primarily look for jobs in the private sector.
Although the official unemployment rate hovers at around 1%, many people remain reluctant to appeal to state-run employment services. These institutions require lengthy registration and carrying out public work, akin to community service, by the unemployed.
The Employment Service of Belarus offers meagre financial benefits, sitting at €10-20, and are generally of little help to the unemployed. Consider, for example, that the average unemployment benefit in Poland is about €150.
The matter is compounded by the fact that many Belarusian enterprises require restructuring, and employment services remain unprepared for a large influx of the unemployed. This is to say nothing of the fact that vocational training institutions are in dire need of modernisation themselves.
Belarus` demographic situation does not differ from situations in other European countries. The population is ageing and a labour force shortages are on the rise. The reduced number of available labourers among the entire population will force the Belarusian authorities to reconsider their approach to the labour market.
How to Improve the Labour Market
Many economists seem to be tired of saying that Belarus needs structural reforms. However, Belarusian authorities keep trying to reinvent the wheel, hoping to save the current economic model, which can eventually drive Belarus into a deep crisis.
To avoid this fate, the Belarusian authorities should reform the Belarusian economy. That is not to buy a new machine for individual enterprises scheme, but a fundamental change of the rules of the Belarusian economy.
The authorities have to tie wage increases to production growth, based on a market mechanism, and to create favourable conditions for business development. Most of the companies posting losses in Belarus, like the Barysau meat processing plant or Vityas TV set plant, should be privatised.
In the event of the liberalisation of the labour market, the authorities should improve the quality and capacity of vocational training institutions and the state-run employment services. These organs institutions should be prepared for an influx of unemployed Belarusians eager to work. They should be able to propose something substantial to Belarusian citizens and be able to teach, retrain and improve their skill sets.
The European Union could play a large role in the modernisation of the labour market. Countries, such as Poland and Lithuania, have already gone through many of the difficult struggles that Belarus faces today.
The new Europe could transmit its knowledge to its neighbour and help it initiate and carry out these reforms. While the West and Belarus are still in the preparatory stages for a new dialogue, Brussels could define its agenda and priorities with Minsk. The labour market can be one of them.