EBRD and World Bank warn against pay rises as detrimental to the financial system

The European Bank for Reconstruction and Development warned against salaries increases in the public sector in Belarus as it could result in a new surge of macroeconomic instability after the parliamentary elections in September 2012. The National Bank and the government however continue loosing the economic policy.

A report, published in July “Regional Economic Prospects in EBRD Countries of Operations: July 2012”, says the EBRD expects economic growth in Belarus in 2012 at 4.5%, and in 2013 – 3%. Inflation in Belarus in 2012 is projected at 60% (annual average).

In turn, World Bank Director for Belarus, Moldova and Ukraine Chimyao Fan noted in a letter to the Prime Minister of Belarus Mikhail Myasnikovich that in the face of considerable uncertainty in the external environment the premature easing of macroeconomic policies in the country could be fraught with considerable financial and economic risks.

According to the World Bank representative in Belarus it is important to continue maintaining macroeconomic stability with tight monetary and fiscal policies to contain inflationary pressures and strengthen positive trends in terms of restoring the balance of external accounts.

However, the National Bank and the government have been easing economic policies this year. Thus, according to the Ministry of Statistics, gross average wage in June 2012 amounted to Br 3752.1 thousand (USD 445.3), which corresponds approximately to the average of October-November 2010.

A further increase in wages could result in a change of currency preferences in favor of foreign currency and exacerbate inflation and devaluation risk in the economy. This summer, the population again became a net buyer of foreign currency, in contrast, in September 2011 – May 2012 individuals were selling more currency than buying.