Proportionate oil supplies will help to control the commitments’ fulfillment
On March 13th, 2013 Belarus and Russia have agreed on 5.75 million tones oil supply in Q2 2013.
Volumes and terms for oil supplies suit both counterparts. Russia needs quarterly adjustments to control the commitments’ implementation by Belarus within the Customs Union. Russia has learned from its past mistakes and regards this method of cooperation with Belarus as the most efficient to improve its impact on the Belarusian economy.
Belarusian government’s press service on March 13th, 2013 announced the agreement has been reached regarding crude oil supply to Belarus in Q2 2013 – a total of 5.75 million tons. The supply conditions were improved. In Q1, the oil supply volume was 5.025 million tons, in Q2 - 5.3 million tons. Shipments via pipelines reduce the oil costs and improve the oil refining economy. On reciprocal terms, Russia received guarantees for 3.3 million tons supply of petroleum products, instead of the previously agreed 2.1 million tons in 2013.
Yet the annual oil supply volumes have not been signed off. Russia wants additional guarantees from Belarus regarding fulfillment of its obligations under earlier agreements, above all, concerning the joint ventures establishment. In particular, the creation of the Rosbelavto holding – a project that had not yet been implemented due to disagreements between the countries about the controlling shares. Petroleum products re-supply guarantees are not crucial – it is Russia’s insurance policy if shortage of petroleum products occurs in some Russian regions during planned maintenance works at the refinery.
In 2012, the annual oil supplies had been signed off but Belarus failed to supply the agreed volumes of petroleum products. Belarus also failed to sell property worth USD 2.5 billion. The EurAsEC Anti-Crisis Fund conditions for the loan to Belarus also were not fulfilled in full. Oil supply is the most sensitive lever of influence on Belarus due to its multi-faceted impact on the economy, both in terms of budget revenues, and the international trade. Coordination of oil supplies every three months enables Russia to increase the petroleum products volumes supplied to the Russian market, and to break the deadlock in the establishment of a MAZ - KAMAZ joint venture.
Russia has found a way to control Belarus’ actions by coordinating the supply of the most sensitive commodity for Belarus for short time intervals. Potentially, Russia could apply this rule in other areas of cooperation, in particular, to the foodstuffs supply. This mechanism is the most effective for further Belarus’ integration into Russia’s sphere of influence.
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.