The government launched "systemic" implementation of "presidential orders"
Regardless of the ambiguity of concrete means to implement the controversial governmental economic programme for 2012, there will be no further discussions of any adjustments or alternative development programmes in 2012. The readiness of the government officials to implement the plan becomes a criterion of their loyalty and professionalism.
On 7 and 9 February meetings of the Council of Ministers were held. Prime Minister Mikhail Myasnikovich said that in order to “implement presidential decrees” the government “must implement consistently” the projected targets adopted for 2012 (GDP growth at 5-5.5%).
The command nature of the Belarusian economy and centralized administrative style of management have been reaffirmed. Economic arguments do not have serious impact on the determination of the economic policy.
Mikhail Myasnikovich’s government in November 2011 was ready to abandon the high GDP growth rates and to defer the projected plans for the next five years until better times, supporting their position with arguments and figures. However following a three months fight with the Presidential Administration, the Government agreed to implement the plans and orders of the President, no longer questioning their substance and / or benefits.
The Belarusian government plans to achieve the GDP growth via increased exports and foreign direct investment, acknowledging insufficiency of the domestic resources. Regardless of the obvious utopianism of the plans (the economic crisis in the world, lack of competitiveness of Belarusian products, poor investment image of the country, etc.), in February the government issues formal declarations again and orders all state agencies to attract FDIs and to implement an action-plan to attract them (and export growth, import substitution indicators, etc.). It says a lot about the quality of management in the public administration.
Moreover, during the meeting of the Council of Ministers M. Myasnikovich personally instructed the Head of the National Bank of Belarus Mrs. Yermakova to provide the economy with the maximum of credit funds, non-emission by nature (it is a new trend in rhetoric, which is optional for implementation). In a similar way (without resorting to printing money) the government plans to increase workers’ wages.
The Government intends to increase incomes via increase of productivity. However, the Ministry of Economy assessed that due to the threefold devaluation in 2011, Belarusian incomes fell to ... the level of productivity. Therefore, what should be the level of the production growth in order to reach the level of earnings of 2010? In particular, if budget revenues are spent on current consumption without any hope for modernization of the economy.
De facto, increased incomes for the population (to USD 500 by the end of 2012 and USD 800 by the end of 2015, the year the following presidential campaign), if such a decision is made, will lead to a massive emission and a new, even deeper crisis. In any case, the government once again initiated populist rhetoric. Therefore, high level officials like Mr. Snopkov, occupying the post of the Minister of Economy, stopped paying attention to their image as professionals and men of their word, and started reiterating the utopian promises of President Lukashenko.
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.