Minsk not rushing to ratify Eurasian Economic Union treaty

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April 22, 2016 18:57

Inasmuch as the Belarusian authorities anticipate strengthening their positions on the international arena, they will deliberately put off the ratification of the Eurasian Economic Union (EEU) founding treaty. Due to the Kremlin’s actions in relation to Ukraine and its aggressive rhetoric (the so-called “Russian world” ideology), the Kazakh and Belarusian leaders want to make sure they are playing safe. Amid increasing pressure from the West on Russia, Minsk and Astana seek to limit Eurasian integration to economic cooperation only by blocking the expansion of the political agenda.

The Russia’s State Duma has promised to speed up ratification of the EAEC Treaty, expecting that Astana and Minsk will do the same.

On May 29th in Astana, the presidents of Belarus, Russia and Kazakhstan signed the Eurasian Economic Union founding treaty, which should take effect on January 1st, 2015. Russia insists on all parties ratifying the EEU founding treaty “simultaneously, if possible”. 

Currently, only Russia has submitted the ratification bill to the Parliament (in early September). However, there are no doubts that Belarus and Kazakhstan will complete all required procedures before the year-end.

It should be noted that the EEU envisages economic integration only, which is an achievement for Astana and Minsk as the Kremlin also wants closer political integration. The political component was entirely crossed out from the final draft of the Treaty thanks to efforts by Kazakh and Belarusian negotiators. Originally, the treaty also included "non-economic" clauses relating to border control and safety, common citizenship, foreign policy, defence and security, as well as health, education, science and culture. 

The parties agreed to develop cooperation in “non-economic” spheres within other post-Soviet integration structures or bilaterally. For example, Secretary of the Belarus-Russia Union State Rapota proposed to introduce a common visa within the Union State (similar to the Schengen visa in the EU). However, Belarus was not keen on this initiative. Belarus’ Foreign Ministry Spokesman Mironchik said that “currently there are no negotiations about this issue”.

Meanwhile, escalating tension in Russo-Ukrainian relations and the Kremlin’s aggressive rhetoric about"protecting the Russian world" have prompted Belarus and Kazakhstan to react. For example, President Nursultan Nazarbayev said that should the Kazakh’s national interests be threatened, Kazakhstan would leave the Eurasian Union.

Minsk seeks to strengthen its international position and to improve relations with the West due to its neutral position in the Russo-Ukrainian crisis and serving as a platform for the settlement negotiations. In addition, Belarus seeks to avoid undue attention to her participation in the EEU amid increasing sanctions pressure from the West on Russia.

Belarus is unlikely to submit the EEU treaty ratification bill to Parliament before late autumn.

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Growth in real wages may disrupt macroeconomic balance in Belarus
October 02, 2017 12:12
Фото: Дмитрий Брушко, TUT.BY

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.