Gini Coefficient Decreases In Belarus: What Does It Mean?

• 27.07.2022, 16:25

Has communism come to our country?

Economists state a drop in real incomes of Belarusians, although formally salaries are growing. DW tried to figure out why this is happening and what to expect next.

Unprecedentedly harsh Western sanctions imposed against Belarus for suppressing democratic protests after the 2020 presidential election and for complicity in the Russian war of aggression against Ukraine began to affect the incomes of the population. Although Belarusian officials claim that the average salary in the country is constantly growing, real income - adjusted for inflation - has begun to fall rapidly.

This is the first such situation in the Republic of Belarus since January 2017. The journalists asked economists about the industries with the most noticeable income decrease and whether Belarusians will continue to get poorer.

The real incomes of Belarusians fall due to inflation

According to Belstat, the average salary in Belarus has been rising for a month. Thus, in April 2022, it amounted to 1,567.8 Belarusian rubles, in May - 1,573.4 rubles, and in June it increased to 1,626.5 (in terms of about 620 euros at the current exchange rate. - Ed.). However, the statistics of real incomes, corrected taking into account inflations, is far from optimistic. If in February 2022 statistics recorded an increase in real wages by 10.7% compared to the corresponding period last year, then in March it already fell by 0.7%, in May - by 5.7%, and in June - by 4.2 %.

In addition, the real incomes of the population also decreased in Belarus - they include not only salaries, but also pensions, benefits, income from entrepreneurship, and so on. In January-April 2022, the incomes decreased by 1.2%. According to Katerina Bornukova, Director of the BEROC Center for Economic Research, real incomes in Belarus are falling because prices are soaring.

The situation is the same with pensions and benefits: on the one hand, they are regularly paid, on the other hand, they do not keep up with the current inflation. “As for the profits of entrepreneurs, they suffer from sanctions directly and indirectly. Many worked for the domestic market, and when people's salaries are cut and domestic demand falls, this affects the income of businessmen,” Bornukova explains.

Gini coefficient improves due to the loss of high-paid employees

For ordinary Belarusians, this means that they are getting poorer, they can afford less food, goods and services compared to what they could buy before, adds Uladzimir Kavalkin, an expert at the Kosht Urada State Budget Revenue and Expenditure Project. It points to a decrease in the Gini coefficient in Belarus: the indicator that reflects the degree of inequality in the distribution of incomes within different population groups.

“The Gini coefficient is better when the income gap between the richest and poorest residents of the country is shrinking, and this is happening in Belarus. It would seem that it is time to be happy, but this is happening against the backdrop of real income falling. It turns out that the highest paid workers leave the country, and due to this, the Gini coefficient is corrected. The easiest way to explain this is by classical communism: everyone becomes equal in their poverty," says Kavalkin.

The largest income decrease is in sanctioned sectors of the economy

Kateryna Bornukova specified the sectors with income reduction and notes that, first of all, there is a fall in those areas that suffer from the sanctions: "If the average decrease of real incomes is 4.2%, then in woodworking - 13%, oil refining - 8%, chemical industry - 15%. If we look at the Minsk region, then in April the decline in the chemical industry was 40%, this is primarily due to the situation at Belaruskali.

In addition, the director of BEROC continues, that there are industries that are not directly affected by the sanctions, but salaries there are still falling: "First of all, this concerns the building sector, where the fall is 8.5%. But this is the older trend, it reflects the situation that develops with the fall in investment."

In response to a question about whether there are economic sectors with real income rising, Bornukova named food production: “There is a slight increase within the sector. It is connected with the increase in food prices like elsewhere. And the fact that products are not exported to the EU, but to Russia, where inflation is high, makes such exports quite profitable. Against this background, it is even surprising that the growth of real incomes in the industry is so low, that it is only 2.6%. On the other hand, why pay more if everything around is going bad."

The number of poor may increase in Belarus

In this regard, Kateryna Bornukova, referring to recent BEROC research on the economic expectations of Belarusians, points out that the citizens of the country have previously negatively assessed the economic situation in the country, and recently their expectations have worsened even more. "We studied it in December 2021 and April 2022 and saw that more people began to talk about the worsening financial situation of their families: 40% in December and 52% in April. At the same time, pessimism regarding the development of the economy has not increased, people already have low expectations in this regard," Bornukova specified.

Speaking about the future, she predicts that there is no need to wait for improvements, although the authorities are trying to maintain employment and income levels through support for state-owned enterprises: "It is necessary to understand that this situation will not last long. It can be maintained for several months, but not a year. Further, it will be necessary to adapt to the new economic reality and to cut salaries. Perhaps we will see cuts. Firstly in the private sector, and then in the public sector."

Uladzimir Kavalkin, for his part, predicts an increase of poor citizens in Belarus, those whose income is below the subsistence level. “People who cannot go abroad will be at risk of falling into poverty as real incomes will decline and unemployment will rise. In early autumn, when all the military and sanctions shocks have passed, the scale of the problem will become clear. Unless, of course, these statistics are published at all," Kavalkin believes.

Therefore, until September-October 2022, according to the Kosht Urada expert, no positive prospects should be expected. “In autumn, the fall will stabilize and the local bottom will become clear. Based on this, it is possible to predict an increase or a continuation of the fall. In any case, it is more dependent not on the economy, but on politics and the war," Kavalkin concludes.