Minsk aims to boost economic cooperation with Kyiv
Minsk aspires to give momentum to trade, economic and military-technical cooperation with Kyiv and boost bilateral trade through political contacts. The Belarusian authorities are unlikely to count on direct assistance from Kyiv in settling relations with Washington and European capitals, however aspire for its support in promoting peacekeeping initiatives. Apparently, in his non-public meetings on the first day of the visit, President Lukashenka assured his counterpart of the Belarusian-Ukrainian border security during the “West-2017” Russo-Belarusian military exercise.
Last week, President Lukashenka held official talks in Kiev with Ukrainian President Petro Poroshenko.
Previously, Minsk was not particularly eager to develop political relations with Kiev, although trade and economic cooperation was quite high: almost USD 8 billion trade turnover with a significant positive balance for Belarus in 2012. Minsk started to develop high-level political contacts when it became a negotiating platform for resolving the armed conflict in the east of Ukraine. In last three months, presidents Lukashenka and Poroshenko have met twice.
The president has attempted to relax tension in Ukraine due to the “West-2017” Russo-Belarusian military exercise. The Belarusian-Ukrainian summit coincided with the aggravation of the confrontation in the east of Ukraine, which undoubtedly enhanced concerns in Ukrainian society about a possible Russian aggression. In addition to the desire to relax tension in the region, Minsk aspires to raise its international status through peacekeeping initiatives.
In addition, Minsk is attempting to insure against future oil and gas disputes with Russia, in particular, after the presidential elections in 2018. Earlier, amid aggravation with the Kremlin over gas and oil, Belarus imported insignificant volumes of Azerbaijani and Iranian oil through Ukraine. Hence, Minsk is interested in developing trade and economic relations with Kiev and regaining access to the Ukrainian market (trade turnover halved in 20112-2015). In return, the Belarusian authorities offer Kyiv access for Ukrainian producers to the Eurasian market.
Minsk aspires to remove concerns in Ukrainian society over the Belarusian-Russian military exercise, while remaining a partner for both, the Kremlin and Kyiv. As a bonus, the Belarusian leadership counts on the growth in bilateral trade turnover due to friendly high-level contacts.
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.