Economist: Surge Of Inflation And Slumping Devaluation Awaiting Belarus

"Salary bubble" and "elections" in Belarus.

Two more news on wage increases appeared in August. The first one concerns the increase in state employees' salaries by 12% from September 1. The second one concerns the increase of the minimum wage by almost 14% since the beginning of 2020.

And something suggests that the Belarusians will hear one more piece of news in the near future - about the next increase in pensions, Salidarnasts writes.

It would seem that such news can't but please. Nevertheless, there are some "buts" in this situation, which are important to remember, Doctor of Economic Sciences Barys Zhaliba warns:

- In short, this may indeed mean a so-called salary bubble. We see that nothing has happened in the economy that would dramatically boost GDP growth. It still remains low.

At the same time, statistics tell us that wage growth is already more than twice as high as labor productivity. If wages are growing by about 7%, labor productivity is only by 3%. As a result, there is an imbalance. Salaries are inflated and labor productivity growth is lagging behind.

The reason for this is, of course, the pre-election campaign. Now they are campaigning before the parliamentary elections, and then the presidential campaign will begin. The state is raising the salaries of those to whom it can raise them. This is the salary for state employees, this is the minimum wage, and there will also be instructions to raise salaries at manufacturing facilities in time for the elections.

According to the economist, such an unjustified increase in wages in Belarus may lead to uncontrollable consequences.

- If this imbalance exceeds some thresholds, we can get a surge of inflation and slumping devaluation. And these "raises" will be written off in one moment. These consequences may hit the economy with some time lag - for example, after the presidential elections in the summer of 2020, it all may backfire and turn out a proper mess," - Barys Zhaliba warns.