Officials and opposition got used to EU sanctions
The European Union has extended sanctions against Belarus by one year. The list of individuals with a travel ban and frozen assets within the EU has been updated. 232 persons and 25 entities remain subject to EU sanctions. Previously, the list contained 242 persons, and 30 entities.
Belarus officials have been prepared for the EU decision to extend sanctions. Their response has been restrained, as they are considering options for Belarus-EU relations to develop in the near future. As usual, the opposition has divided into two camps with respect to the EU sanction policy, but without serious confrontation.
The state media has not reported on the extension of EU sanctions. The only official reaction was from the Belarusian Foreign Ministry, which issued a fairly neutral statement.
Belarus’ authorities have interpreted the shortening of the EU ‘black list’ as a step towards Belarus ahead of the Eastern Partnership Summit. Foreign Ministry spokesman, Andrei Savinykh emphasized the positive side in the EU decision, “We have noted the trend towards sanctions being reduced. However the European Union’s decision is wrong and counterproductive”. Meanwhile, whether Belarus will be represented at the Eastern Partnership Summit and at what level depends on Belarus’ ‘Eastern’ policy. Belarus hopes to resolve the issue of resuming Russian subsidies to the Belarusian economy in the near future.
Simultaneously, independent public opinion polls say that EU sanctions are assessed positively by the population. The opposition politicians’ debate about the necessity of sanctions has been heated up too. However, unlike before, this debate has not provoked any open accusations and hostility among opposition politicians. Opposition leaders have come to an understanding that the EU has limited means to influence Belarus’ government policies.
Some politicians who traditionally take a radical stand have criticized the EU’s decision to shorten the ‘black list’. However they have not used the information about complaints filed to the European Court by Belarusian citizens on the sanctions list to spur a debate in society. It is worth noting that this information was disclosed by the Belarusian Institute for Strategic Studies (BISS), which had previously been accused by certain politicians of lobbying the interests of the ‘regime’s sponsors’.
Belarus is not prepared to spoil relations with the EU: as yet there are no guarantees that Russia will resume its subsidies to the Belarusian economy. The Belarusian government is considering various opportunities to participate in the Eastern Partnership Summit. Depending on the outcome of negotiations with the Kremlin, Belarus will choose the best option for its representation and strategy at the Summit. Among the opposition, there are positive trends regarding convergence on the possibility of influence on the authorities from the outside.
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.