Incomes grow slower than prices

The authorities are balancing between the desire to restore the social contract with the population (at least to an extent) and the force of economic realities. If simultaneous growth of prices and incomes continues in 2012, the authorities should drop their plans for macroeconomic stability and reduction of inflation to 19%.

Deputy Minister of Labour and Social Affairs Valentina Koroleva said that in November pensions will increase by 22% on average. The minimum retirement and social pensions will also be raised in proportion to the Subsistence Minimum Budget. Pensions will increase depending on work experience, income levels and other factors. This will be the third increase in retirement pensions this year, with the previous ones occurring in June and August, and the fourth increase in the minimum retirement and social pensions, said Valentina Koroleva, deputy minister of labor and social security.

It is anticipated that as of 1 November old-age pensions will average out at one million rubels ($117). Pensions will be funded from the Social Protection Fund of the Ministry of Labour and Social Security. According to the ministry, the higher pensions will require an additional 435.5 billion rubels out of the Social Security Fund and the monthly governmental expenses on pensions as of 1 November will amount to around Br 2.4 trillion. Mrs. Koroleva said the Fund has enough resources to cover this amount.

According to the ministry, the higher pensions will require an additional 435.5 billion rubels out of the Social Security Fund and the monthly governmental expenses on pensions as of 1 November will amount to around Br 2.4 trillion.

On November 1 public transport fares in Minsk will grow by Br 350 to Br 1300 per trip. It is anticipated that by the end of 2011 the fares will double and reach Br 1,850.

As of 1 November the price of electric power supplied to certain categories of non-governmental organizations will increase by 15 percent. In particular, the price will be raised to 222.9 rubels per kilowatt-hour for health care and religious organizations, gardening societies, dacha and garage cooperatives, homes for the aged and disabled, children’s villages and homes for children with developmental disabilities. The thermal energy rate for these categories of organizations will be raised by 3.2 percent.

It is anticipated that soon a similar increase in tariffs for gas, electricity and heat will be introduced for the rest of the population.

Comment

Regardless of the statements by the Deputy Minister about sufficiency of funds in the SPF to fund pensions increase, it goes against the recommendations of the IMF and other creditors. Rising incomes stir up inflation and put additional pressure on the currency market, in addition, there is a constant pressure on the SPF funds, which could exhaust at one point, given the demographic situation and rising unemployment.

Therefore, the authorities are balancing between the desire to restore the social contract with the population (at least to an extent) and the force of economic realities. If simultaneous growth of prices and incomes continues in 2012, the authorities should drop their plans for macroeconomic stability and reduction of inflation to 19%.

Rising incomes stir up inflation and put additional pressure on the currency market, in addition, there is a constant pressure on the SPF funds, which could exhaust at one point, given the demographic situation and rising unemployment.

Lukashenko could keep on with such policy if he found additional foreign currency resources, for instance, privatization of assets by Russian investors. Moreover, the imbalance of policies and priorities implies continuation of conflict between the government and the National Bank, as well, between different ministries.