External creditors believe Belarusians should pay more for utilities and public transport
Performance assessment of Belarus’ fulfillment of its obligations within the EurAsEC loan made by the Eurasian Development Bank (EDB) jeopardizes the timely allotment of the following tranche from the EurAsEC Anti-Crisis Fund (ACF). The ACF rules, applied to Belarus, force Belarus to increase housing and transportation tariffs in the near future.
On 24 January the Eurasian Development Bank (EDB), fund manager of the Anti-Crisis Fund of the EurAsEC, issued a press release assessing cooperation with Belarus within the framework of crediting of the anti-crisisprogramme. At the same time the EDB refused to clarify the terms and conditions for the third installment of the loan for Belarus, referring to the fact that negotiations have just started.
Expert team of EDB mainly complained about the following: 1. as a result of 2011, one of the most important parameters concerning adjustment of the balance of payments and inhibition of inflation, namely, cost-cutting on state programmes, has not been met; 2. municipal services and transportation costs reimbursement rates have not been met.
According to provisional data, in 2011, funding of state programmes made up 4.5% of the GDP, which is by 0.5 % higher than the benchmark provided by the coordinated anti-crisis programme. The level of cost recovery for utilities is significantly below the stipulated 30% and for transport - 70%, envisaged by the stabilization programme. EDB experts in cooperation with the Government drafted a new agreement (a letter of intent), which takes into account the results of joint work in 2011, and amends the anti-crisis programme.
The Belarusian government hopes that the issue of the following installment of the ACF of the EurAsEC will be reviewed in February. However, it is likely that the ACF will delay the payment of USD 440 million, demanding the Government to increase housing and transportation tariffs.
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.