Putin and Lukashenko: there will be no emergency aid

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April 22, 2016 18:03

At the meeting in Sochi on September 15th Putin and Lukashenko discussed Belarusian-Russian relations. In the short term no decisive breakthroughs, destructive conflicts, or ‘first aid’ financial assistance from Russia should be anticipated.

Belarusian media reported that the meeting in Sochi was initiated by Russia, but on September 11th, President Lukashenko phoned Putin to congratulate him on the success of the APEC Summit (Asia-Pacific Economic Cooperation), where the Russian President represented interests of Belarus and Kazakhstan as part of the Customs Union.

In Russo-Belarusian relations, the most important issues for Russia include: the introduction of utilization duty on motor cars by Belarus simultaneously with Russia, and in general – synchronization of trade policies and Belarus’ political support of Russian integration initiatives. For Belarus, the most important issues are to obtain the next tranche from the EurAsEC Anti-Crisis Fund, compensation measures for Russia’s WTO accession, new loans and / or sale of state enterprises. 

On the Russian issues, “common issues” were discussed in a spirit of constructive and peaceful cooperation, but no concrete decisions were taken. On the issue of introduction of utilization duty on motor cars by Belarus, Belarus received the opportunity to sell its consent to such a measure, and to delay introducing the duty until a convenient date. Russia would like Belarus to introduce this duty at minimum for agricultural vehicles, as this would simplify the movement of imported motor vehicles within the Customs Union borders, reducing Russia’s control costs. Basically, Russia could motivate Belarus to take this step, if Russia in exchange could ensure lower costs for Belarusian agricultural producers after the utilization duty has been introduced by Russia.

Regarding Belarusian issues, there was no chance that the parties could find easy solutions. The only exception was a virtual guarantee that Belarus will receive the fourth tranche from the EurAsEC ACF with the only disagreement about the allocation terms. Russia is not set up to pay compensation to Belarus because of its WTO accession. Putin was hardly impressed by problems voiced by Lukashenko concerning migration control at the Customs Union border. It would be premature for Russia to consider new loans for Belarus: such option exists but not in 2012.

In order to close the funding gap, Belarus would either have to sell a large enterprise or focus on negotiations with the IMF. Since it is unlikely that Belarus will reach an agreement with the IMF in 2012, Belarus will have to find a buyer for some of the largest state-owned assets by the end of the year.

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Growth in real wages may disrupt macroeconomic balance in Belarus
October 02, 2017 12:12
Фото: Дмитрий Брушко, TUT.BY

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.

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