Currency Shock Could Empty Store Shelves in Belarus

Economists predict a shortage of goods in the country's consumer market.

Another state campaign on administrative price management has begun in Belarus. Suppliers of foodstuffs and medicines were instructed to practically zero out the rise in prices. However, because of this decision, the shelves in stores can also be "zeroed," naviny.online writes.

The Administrative Path to Fair Prices

Inflationary processes in Belarus have noticeably increased in recent months. The authorities expected inflation to be 5% in 2021, but in January the situation turned out to be completely different - the growth of prices in the consumer market in annual terms accelerated to 7.7%.

This pushes the National Bank to increase the refinancing rate, which will inevitably lead to an increase in the cost of credit resources for the economy. For the government, which is responsible for GDP growth in the country, such a scenario is hardly desirable.

In addition, the increase in VAT on medicines and medical equipment led to an increase in prices in pharmacies, which the Belarusian authorities did not like at all.

As a result, it was decided to react toughly to the acceleration of inflationary processes - from February 23 until the end of the month, the government banned the suppliers of socially important goods and medicines from raising prices for socially important goods. And since March, prices for 62 items of socially important goods and 50 items of drugs have been allowed to increase only by 0.2% per month.

In fact, this is yet another obvious tightening of price controls in the country. By the way, until 2019, against the background of a stable exchange rate, there were isolated cases of price regulation that related, for example, to sugar.

The trend towards a clear tightening of price controls began last year and was associated with an increase in foreign exchange rates in Belarus. In March last year, Belarusian companies were ordered to raise prices by no more than 0.5 percentage points per month.

However, that decision caused a huge resonance, since after the 20% devaluation last spring, it was almost impossible to contain the rise in prices. Therefore, the state soon replaced control over prices from total to selective, and no limit values were set for the rate of price growth.

From April 2020 to February 23 of this year, price control was expressed mainly in the fact that the Ministry of Antimonopoly Regulation and Trade determined the list of socially significant goods and restrained the growth of prices for these items by limiting the profitability of manufacturers, markups of importers and operators of retail, as well as wholesale trade.

However, it seems that these measures were not enough for the authorities, and therefore, they again decided to switch to stricter methods of price control, setting the maximum growth rates of consumer prices.

By the way, the Ministry of Antimonopoly Regulation and Trade, explaining the decision of the Council of Ministers to contain prices, noted that "the goal of the government's decision is to guarantee fair prices for food products and medicines in daily demand."

Prolonged price freeze is fraught with a shortage of goods

Where will tightening price control lead this time? To fairer prices in the consumer market or should we start preparing for a shortage of goods due to the unwillingness of suppliers to sell them at directive prices?

By the way, socially significant goods, prices for which will now be regulated, include not only domestic products but also imported ones - fresh frozen fish (cod, mackerel), tea, coffee, and vegetable oil.

Since the dollar exchange rate is still stable, there are no prerequisites for a significant rise in prices for imported food products, the top manager of the distribution company told the BelaPAN correspondent.

“Last year, we compensated for the rise in the dollar exchange rate by about 20% by increasing prices by 8%, as well as by folding shares. Now no one will simply raise prices, and if the exchange rate goes up again, no government decree will be able to restrain the rise in prices,” the source said.

According to him, businesses will not operate at a loss, and if strict state regulation of prices persists for a long time, then in the event of an increase in the exchange rate, food importers will have to suspend the shipment of products to retail chains.

“If the exchange rate goes up strongly, many will not want to work at a loss, and the business will stop and negotiate with the authorities about further actions,” a food supplier suggested in a comment for BelaPAN.

Belarusian economists have the same opinion.

“For example, coffee is a commodity. If prices for it on foreign markets grow or if the rates of foreign currencies grow, then under the conditions of strict price control, one may face the opening of store shelves for those foodstuffs that are imported," Vadzim Iasub, a senior analyst at Alpari Eurasia, said in a comment for BelaPAN.

Business unions also warn of the possible negative consequences of administrative price controls in the consumer market.

“Socially important goods, including imported ones, are often low-margin products. Accordingly, if the exchange rates of foreign currencies, as it sometimes happens in our country, grow, then it will be very difficult to sell imported food products at the old prices, and they may start to disappear from store shelves,” the chairman of the Republican Union of Industrialists and Entrepreneurs Aliaksandr Shvets said in a comment for BelaPAN.

Therefore, he is convinced that government agencies need to be "as vigilant as possible" to prevent negative developments in the consumer market under conditions of strict price control.

According to the expert, the current form of price regulation, which is expressed in the maximum limitation of the rate of price growth, "means that the state needs to get the effect of price control immediately."

“At the same time, it is obvious that the use of such tools to contain prices in the medium and long term can be replete with negative consequences. Therefore, we hope that the price freeze used now will be applied in the short term, which will not exceed three months,” Aliaksandr Shvets stressed.

By the way, the Belarusian authorities themselves were categorically against freezing prices at one time.

In general, representatives of the business community believe that strict administrative methods of price regulation are permissible only in exceptional cases.

“Restriction of price growth can take place when there is a shortage of goods when it comes to goods of monopolies,” Zhanna Tarasevich, director of the Business Union of Entrepreneurs and Employers named after Kunyavsky, said in a comment for BelaPAN.

In her opinion, to ensure fairness in the consumer market, as the government wants, the state needs not to restrain prices, but to support poor citizens, compensating them for part of the costs of purchasing socially significant goods.

“If we strive to establish a fair price, both the poor and the rich will use it. So for whom will this price be fair - for the rich, for the poor, for the regulatory authorities? We need to decide what exactly we want to understand by fairness, and then the state policy in the consumer market will become more understandable and effective,” Zhanna Tarasevich summed up.