Changes in public procurement system in Belarus would reduce budget expenditure
In 2017, the parliament should adopt amendments to the Law "On Public Procurement" aimed at strengthening the competition in this area. Annually, the state spends at least 7% of GDP on state procurement orders and every other contract to supply goods and services for the state is carried out with violations of the current legislation. The proposed amendments envisage to reduce government spending on public procurement by at least 10% of the allocated budgetary funds. The state would use the saved funds to finance other needs.
In the autumn of 2017, the Belarusian parliament will consider a new version of the Law On Public Procurement in the second reading. It envisages new options for state procurement orders in construction based on the industry’s specifics. The procurement from one source will become fully transparent, full information about public procurement tenders and received quotes from counterparties will be published, and requirements for suppliers will be unified in order to exclude abuses. Any changes to the signed agreement will be prohibited and participation of affiliated structures in public procurement will be limited.
The amendments to the current legislation are long overdue due to significant financial resources used to purchase goods for the state needs and numerous abuses in this field. In 2016, state procurement totalled BYN 6.5 billion or USD 3.3 billion, which was about 7% of Belarus' GDP. In 2016, more than 800 complaints against violations in the procurement procedure were considered, 45% of them were upheld.
When adopted, the amendments would permit to reduce the share of purchases from one supplier, thereby increasing the competition for public procurement contracts and reducing the price. Suppliers, who would violate the contractual terms within the public procurement would be blacklisted, which would limit for two years their participation in public procurement tenders and enhance the compliance with the contractual terms. Unified requirements to suppliers would reduce corruption in the public procurement system, which often led to inflated prices and payoffs. Transparency in procedures and their automation would enable efficient assessment of the public procurement results and reduce violations and abuses when making contracts. The state aims to save some 10% on public procurement orders due to the enhanced competition and reduced corruption. The saved funds could be used on the social needs or on the support for the economy.
The number of violations in the public procurement system has prompted changes in the current legislation in order to strengthen the competition in this field. Due to the new public procurement regulation, prices on goods and services would reduce, corruption levels would lower and up to 10% of public procurement funds would be saved, which could be used to finance other state needs.
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.