Attack on the reputation of President Lukashenko
Russo-Belarusian relations remain turbulent. Both parties are interested in mutual concessions and use different tools to put pressure on each other.
On July 25th Russian Olympic Committee Head Alexander Zhukov outraged in his Tweeter the denial of accreditation for the XXX Olympic Games in London for President Lukashenko. Later this information was confirmed by the British Embassy in Minsk.
The obvious implication of the ‘outrage’ by the Russian Olympic Committee Chairman was to draw attention to the EU visa sanctions against Belarusian leadership. Rapid reaction from the British Foreign Office and silence of the Belarusian government implies that it could be a planned action in order to exert pressure on Minsk.
In turn, the Belarusian authorities were not interested in attracting additional attention to the status of President Lukashenko as persona non-grata. Earlier, the Belarusian President attempted to accredit for the Olympic Games however was denied via informal channels. Therefore, on July 12th, during the opening of the ‘Slavic Bazar’ music festival in Vitebsk Lukashenko regretfully called the Olympic Games a politicized event.
Therefore, it is likely that the Twitter intercession by Mr. Zhukov meant to put additional pressure on the Belarusian authorities, which hold complicated negotiations with Russia on a number of issues, the main and the most controversial of which is the privatization of Belarusian enterprises.
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.