CIS Summit postponed decisions on most important issues for Belarusian authorities
The Belarusian authorities had to postpone until the year-end the decision on the most important for them issues regarding the economic cooperation with Russia. According to the ruling group, Russia is not interested in deteriorated relations with Belarus and continues to provide financial support, in spite of the non- fulfillment of the agreement conditions by the Belarusian side.
On 5 December President Lukashenko took part in the Summit of the CIS states in Ashgabad.
For Belarus the main result of the Summit in Ashgabad is a negative one, namely the negotiations between Presidents Lukashenko and Putin failed to take place. There is a probability that the Russian President has ignored his Belarusian Colleague due to the recent statement made by Lukashenko to the “Reuter” agency on the health problems of Putin. In any case, the bilateral meeting has never taken place and the Press-Service of Lukashenko announced that such event had not been even planned.
As a result Minsk had to postpone the decision of the most important economic questions (first of all it is the balance of the oil supplies for 2013 as well as a number of privatization agreements) to December 19th, when the sitting of the Supreme State Council of the Union State of Belarus and Russia should take place in Moscow.
At the same time, Moscow continues to demonstrate its political will to consider the financial problems of Belarus: on December 7th the Anti-crisis Fund of the Euro-Asian Economic Union (EuroAsEs) provided to Belarus the 4th tranche of USD 440 million. Moreover, the Belarusian and Russian financial officials agreed that Minsk has not fulfilled all the conditions of the credit agreement, and that the decision on the provision of the tranche is a political one.
Most likely that in the surrounding of Lukashenko they highly value the interest of the Russian authorities in the development of the project of the Euro-Asian Economic Union and that is why Minsk continues to fulfill selectively the agreements with the Kremlin in the sphere of privatization and financial politics – even if theoretically there is a threat not to sign the important agreements for the next year. Such a policy of the “taking by attrition” is a customary common practice for Minsk: e.g. the agreement on the gas provisions to Belarus in 2007 was signed on 31 December 2006 just few minutes before the New Year.
At the same time it is worth noting that President Lukashenko remains the center of the decision making in Belarus. That is why one should not underestimate the meaning of the other channels in decision making, in particular, the 12 December planned bilateral meeting of Prime-Minister of the Republic of Belarus Myasnikovich and Russian Prime-Minister Medvedev in the framework of the Council of Ministers of the Union State. The stand of Prime-Minister Myasnikovich today is especially week, and he is not in a position to influence on the decisions of Lukashenko in favor of the Kremlin.
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.