Belarusian authorities get a summer break
On June 7th, Russian Ambassador to Belarus Alexander Surikov held a press conference in Minsk.
Ambassador Surikov’s statement will be used as an excuse by the Belarusian authorities to delay the implementation of a new bilateral agreement on privatization. The probability that the oil supply agreement for Q3 will be signed is high, although Belarus is unlikely to get a loan from Russia, because it would be tied to implementation of joint projects.
Ambassador Surikov’s appearance is linked to the activation of the Russo-Belarusian relations and integration processes in the post-Soviet space in the frameworks of the CIS, Collective Security Treaty Organization and the CES in late May - early June. Ambassador’s press conference meant to draw attention to the Kremlin’s priorities in bilateral projects on industrial, financial, and military cooperation with Belarus, as well as to re-define Russia’s requirements.
In particular, Surikov said that in the autumn Belarus and Russia were anticipated to sign agreements to establish a joint holding company, merging MAZ and KamAZ motor works. In addition, Ambassador said that Russia was ready to give a loan to Belarus for enterprises’ modernization only if joint projects were launched. Finally, Surikov reiterated Russian Defense Minister Sergei Shoigu statement about the imminent establishment of Russian military compound in Belarus.
Regarding oil supply to Belarus, Ambassador said that Russia will take Belarus’ wishes into account. This implies that Belarus may count on a quarterly or semi-annual agreement for 23 million tons per year. The agreement should be signed by mid-June 2013. Previous agreements in 2013 were signed quarterly.
Thus, highly likely, the oil supply agreement with Belarus will be signed, and Belarus will be granted a delay at least until autumn regarding its commitment to privatize state property. Surikov’s statements will be used by Belarusian negotiators as additional arguments to justify their position.
Noteworthy, Ambassador Surikov’s views are not always in agreement with the Kremlin. Nevertheless, the moderate nature of Ambassador’s statements, as well as the context of recent integration-related events suggests that Belarus has managed to drag the Kremlin in another negotiation round. Most likely, Belarus is using the deployment of Russian military air base and the customs tariffs’ harmonization terms within the CES as negotiations arguments.
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.