The Kremlin sends yet another warning signal to Minsk
Before the elections, the Kremlin mildly reminded the Belarusian authorities about their yet not fulfilled commitments concerning the state property privatization. Simultaneously, Moscow has indicated that it has not welcomed the aggravation in EU-Belarus relations provoked by the latter and that it will not take tough measures in response to the European sanctions.
On September 6th, Belarusian office of Russian news agency “Interfax” published an interview with a senior adviser at the Russian Embassy in Minsk Valeri Bondarenko.
The most important statement made by Embassy’s Senior Adviser was a reminder about the terms of credit and economic cooperation between Russia and Belarus. Mr. Bondarenko recalled a number of last summer visits to Minsk by senior Russian officials: from President Putin to State Duma heads. It is known that the main subject of talks during these visits was the privatization of Belarusian enterprises (MAZ, Belaruskali) and it is also known that Minsk is delaying the fulfillment of its obligations.
Simultaneously, the Adviser assessed the volume of economic support from Russia to Belarus – mutual duty-free trade in oil and oil products, and other factors – more than USD 6 billion – and emphasized that the European Union was not able to provide comparable support to Belarus.
Finally, Mr. Bondarenko send a strong signal that Russia was not interested in another loop of crisis in the relations between Belarus and the EU. In particular, he reiterated the August statement by Russian Foreign Minister Lavrov, who said that Russia would not take strong measures in response to the European sanctions against their Belarusian partner and suggested the following foreign policy formula: “any positive developments in the Belarus – EU relations will automatically have a positive impact on relations with Russia”.
The mentioned above nuances in the interview with Mr. Bondarenko should be regarded as yet another diplomatic reminder to the Belarus’ authorities about unfulfilled commitments. Mr. Bondarenko’s statements imply that Russia will continue to ignore the deterioration of the Belarus-EU crisis and will not make allowances. In the meanwhile, naphtha supply from Russia to Belarus is still suspended, which has a negative impact on the Belarusian foreign trade balance.
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.