Public sector and civil servants are budget cut targets
According to draft legislation, as of January 1st, 2014 the Supreme Economic Court will merge with the Supreme Court, and Economic courts will become part of general jurisdiction courts system.
The so-called ‘improvements’ made by the authorities to the judiciary follow the overall trend of cutting budgetary expenditures. The authorities do not intend to review the current socio-economic policy in the short and medium term. They hope to preserve the existing model in a truncated form, by reducing the number of civil servants and cutting related costs.
The authorities’ plans to improve the work of the judiciary do not envisage drastic changes in the legal system. The changes will not affect the quality of justice in Belarus which would require increasing the judiciary’s independence and credibility.
The ‘judicial reform’ primarily aims to reduce budgetary expenditure on the judiciary – firstly on the administrative apparatus. President Alexander Lukashenko said “we have to achieve a significant reduction in the number of administrative staff. We have few judges as it is.”
Earlier in 2013, within the ‘administrative reform’ some budgetary cuts were made for certain categories of civil servants and public sector employees. In H1 2013 about 30 % of public officials were laid off, which allowed salaries to be increased for the remaining employees. According to the National Statistics Committee, in July due to lay-offs, public officials’ wages were increased by 43%.
The ‘administrative reform’ also affected teachers and other education professionals. They are forced to work more (from 18 to 20 hours per week), but their salaries have increased only by 3%.
Salaries of those employed by the Belarusian Rail Road were cut by 10%, and their working hours reduced to 35 hours per week. Employees are also advised to take unpaid leave.
Deputy Finance Minister Maxim Ermolovich said, that “over 1 million people are paid from the state budget, we won’t hold it out, therefore optimization is objectively necessary. It is already underway. The army and the police are included in this optimization.”
In addition, the authorities continue to cut costs on “social” budget items. Transport, housing and communal services tariffs are gradually going up. Small price increases on various goods and services subsidized from the state budget occur every month.
In the absence of external funding, authorities will continue to cut some expenditure items. They will do it gradually so as not to cause tension in society and open expressions of discontent. Meanwhile, the likelihood that President Alexander Lukashenko will agree on structural economic or social or institutional reforms is extremely low.
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.