Despite international sanctions, the Belarusian government reported economic growth and pay increases in the first half of the year.
Pay rises as inflation slows down
Belarusians average nominal (before taxes) pay rose by 3.54 percent in June to 1,927.1 rubels ($637 at the official exchange rate on July 12) from the previous month’s level. Average nominal pay increased by 14.4 percent since January 1, reported the National Statistics Committee (Biełstat).
Meanwhile, people’s real income climbed by 3 percent from January to May compared with the same period last year, Biełstat said.
Income picked up in March after decreasing for several months.
Biełstat also reported 2-percent economic growth, after a slump of 4.7 percent in 2022. It was driven by an upturn in industry, trade, construction and agriculture, Anrej Kartun, a deputy economy minister, said on July 18.
Meanwhile, inflation slowed down compared with 2022. Consumer prices rose by 2.97 percent in the first half of 2023 and by 2.9 percent July on July.
The economy is recovering despite Western sanctions imposed on Belarus over allegations of human rights abuses, the forced landing of a civilian aircraft, the authorities’ alleged role in the migrant crisis, and Minsk’s support for the Russian invasion of Ukraine.
Kavalkin: Objective causes of growth
Belarus’ real pay rose by 9.6 percent year on year in April and considerably outpaced economic recovery, said Belarus Change Tracker in May’s report.
The Belarusian Economic Research and Outreach Center (BEROC) warned last month that the pay hike might fuel inflationary pressures.
Adjusted to inflation, real pay increased by 15 percent in June compared with June 2022. Uladzimir Kavałkin, of the Košt Urada think tank, says that wages have outpaced prices after the government’s intervention last year to introduce price controls.
In an interview with The Viewer, he attributed the economic recovery to the government’s drive to redirect exports from west to east, and boost sales in Russia, including by circumventing international sanctions. Belarus also considerably increased transit of petroleum products and potash through Russia.
The government also took measures to limit capital flight amid Western sanctions.
Kavałkin also noted lending expansion and generous Russian economic support that helps Minsk finance the budget deficit.
Warning from National Bank
In late July, Dźmitryj Muryn, chief of the Monetary Policy and Economic Analysis Directorate at the National Bank of Belarus, warned of possible macroeconomic imbalances that might arise as a result of the government’s attempt to spur economic growth without achieving a subsequent proportional increase in production. He pointed out that Belarusian goods might become less competitive and that inflation might accelerate. He also warned of possible pressures on the budget.
Think tanks, including BEROC, released similar assessments. Inflation is likely to accelerate to 5 – 7 percent at the end of the year, said Anatol Charytončyk of BEROC on August 8.
Kavałkin emphasized the vulnerability of the national currency tied to the weakening Russian ruble. “The economy is so much entangled in relations with the eastern neighbor that its problems negatively affect Belarus,” he told The Viewer.
“There are too many beneficiaries of a weaker Russian currency there [in Russia]. The finance ministry is hoping to balance the budget, which is deep in deficit. Exporters benefit from the weak currency when foreign currency revenues are transferred to Russia. Manufacturers of import-substitution goods have reason to ask for additional state support as imports become more expensive,” he said.
“Belarus’ National Bank and finance ministry face a daunting task. On the one hand, excessive rubel depreciation may cause living standards to fall, while on the other, an excessive effort to prop up the rubel puts pressure on foreign exchange reserves,” Kavałkin said. “It is hard to tell what balance of interests the government will pursue. Most likely, its decisions will not be dictated by economic logic.”