Stabilization loan: slow-motion negotiations continue
The next round of the Belarus-Russia talks on credit and financial cooperation was held on 11 April in Moscow.
During the meeting, the parties have identified measures, which could be implemented within the framework of the mid-term economic policy for Belarus, and also agreed to hold consultations between representatives of the Ministry of Finance and the National Bank of both countries in the Russian Finance Ministry starting on 14 April.
Russia delays the issuance of the stabilization loan to Belarus, forcing the country to accept certain conditions. Namely, unification of economic policies aimed at reducing amounts of subsidies, grants and use of other non-market instruments of economy stimulation, devaluation of the Belarusian ruble and privatization. Obviously, the positions and interests of both countries often differ radically. For instance, the Belarusian National Bank insists on senselessness of devaluation, while Russia considers it justified and offers to discuss it in numbers and speed rate. Belarus wishes to receive an “adequate” price proposal for its assets, while Russia proposes to make non-monetary exchange of shares (an exchange of assets within the holdings). Belarus is not ready to give up on credits and subsidies to state-owned enterprises to maintain high growth rates (which is almost never used in Russia).
At the same time, Russia could not but support the country it created the Union State with. Therefore, in the near future (April-May), Belarus will receive a $ 1 billion loan, while another $ 2 billion of stabilization loan in the framework of EurAsEC will be torpedoed by Russia.
The rapid increase in wages has led to a decline in the ratio between labour productivity and real wages to one. Previously, the rule was that enterprises, in which the state owned more than 50% of shares in the founding capital, were not allowed increasing salaries if this ratio was equal to or less than one. The authorities are unlikely to be able to meet the wage growth requirement without long-term consequences for the economy. Hence, the government is likely to contain wage growth for the sake of economic growth.
According to Belstat, In January – August 2017, GDP growth was 1.6%. The economic revival has led to an increase in wages. In August, the average monthly wage was BYN 844.4 or USD 435, i.e. grew by 6.6% since early 2017, adjusted for inflation. This has reduced the ratio between labour productivity and real wages from 1.03 in January 2017 to 1 in the first seven months of 2017. This parameter should not be less than 1, otherwise, the economy starts accumulating imbalances.
The need for faster growth in labour productivity over wage growth was stated in Decree No 744 of July 31st, 2014. The decree enabled wages growth at state organizations and organizations with more than 50% of state-owned shares only if the ratio between growth in labour productivity and wages was higher than 1. Taking into account the state's share in the economy, this rule has had impact on most of the country's key enterprises. In 2013 -2014 wages grew rapidly, which resulted in devaluation in 2014-2015.
Faster wage growth as compared with growth in labour productivity carries a number of risks. Enterprises increase cost of wages, which subsequently leads to a decrease in the competitiveness of products on the domestic and foreign markets. In construction, wholesale, retail trade, and some other industries the growth rate of prime cost in 2017 outpaces the dynamics of revenue growth. This is likely to lead to a decrease in profits and a decrease in investments for further development. Amid wage growth, the population is likely to increase import consumption and reduce currency sales, which would reduce the National Bank's ability to repay foreign and domestic liabilities.
The Belarusian government is facing a dilemma – either to comply with the president’s requirement of a BYN 1000 monthly wage, which could lead to new economic imbalances and could further affect the national currency value, or to suspend the wage growth in order to retain the achieved economic results. That said, the first option bears a greater number of negative consequences for the nomenclature.
Overall, the rapid growth in wages no longer corresponds the pace of economic development. The government is likely to retain the economic growth and retrain further growth in wages. Staff reshuffles are unlikely to follow the failure to meet the wage growth requirement.