Minsk interested in EU dialogue only on economic issues
Belarusian authorities continue to ignore activities within the EU Dialogue on modernization with Belarus, where the opposition and independent experts play an important role. In turn, Belarusian authorities keep in contact with the EU officials directly and discuss only economic, rather than political issues of bilateral cooperation.
On November 21st, the second round of expert dialogue between EU and Belarus on economic and financial affairs was held in Brussels.
As we have mentioned before, the Belarusian authorities are not interested in taking part in the EU Porgramme launched in spring 2012 on expert-political cooperation “Dialogue on modernization with Belarus”. The authorities ignore this programme because it was launched without their participation, but with the participation of the Belarusian opposition and independent expert community. The authorities refused to take part in the launch due to the fact that the programme meant to address highly sensitive political and economic issues for Lukashenko’s regime.
Therefore, Belarusian officials prefer maintaining direct contacts with the EU and address politically neutral issues without the opposition’s and independent experts’ involvement. The November 21st event was attended by Deputy Economy Minister Golukhov, Deputy Finance Minister Ermolovich, Permanent Representative of Belarus in the EU Evdochenko, as well as representatives from the National Bank of Belarus and other agencies. From the EU side, there were Head of Department for the EU neighboring countries and macro-financial assistance of the European Commission Directorate General for Economy and Finance, Mr. Temprano and officials from the European External Action Service of the European Commission. The next round of talks was scheduled for autumn 2013.
In addition, the Belarusian authorities have launched an alternative programme for expert dialogue “Smart Networks”. They invited young professionals to take part in it with an incentive that they will receive job offers from state analytical and expert centres to develop professionally. The programme is yet to be formalized and will be carried out under the auspices of the Information and Analytical Centre of the Presidential Administration and with the participation of public administration and education bodies. The project work is organized in several thematic areas: the need for political reforms in Belarus, the need for privatization, the role of a welfare state, European and Eurasian integration, etc.
The situation is developing so that both ‘expert dialogues’ will continue co-existing in parallel and independently of one another. Similar parallelism and mutual independence will be preserved in the contacts of the authorities and the opposition with the EU and U.S.: the authorities will not allow the opposition to mediate the dialogue process and will focus discussions on economic issues. In addition, the authorities have a number of regional security issues to put on the agenda for a possible dialogue with the EU (smuggling, drug trafficking, illegal migration, etc).
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.