EurAsEC Summit: demand more to get at least something
Russian President Vladimir Putin said in Minsk that despite budgetary losses, Russia was ready to fully eliminate the exemptions and limitations on petroleum products within the Customs Union if other CU partners did the same.
All participants in the Summit were interested in demonstrating progress in bilateral relations on issues that concern them the most. Lukashenko’s appearance in the media was successful. President Putin made a statement about concessions to Belarus on oil products if certain conditions were met. Belarus would have to engage more in Eurasian integration and allow Russia’s greater presence in the Belarusian economy.
All summit participants were making positive statements which their EurAsEC partners would like to hear. President Putin has assured Lukashenko of certain subsidies to the Belarus’ economy, “we understand that our partners would like us to eliminate these exemptions associated with petroleum and oil and so on. We are ready [to do it]”.
President Lukashenko has refuted his own statement, which he made in Mogilev the other day about the ultimate value of independence, “sovereignty is not an icon. Everything has a price. If we want a better life, we have to sacrifice something. The major issue is the people’s well-being”.
Lukashenko has joined efforts with President Nazarbayev to strengthen his position and to push for common interests. Kazakh President’s statements echoed ones Lukashenko had made ahead of the Summit: “since we have an agreement, let’s create real common economic space and remove these exemptions. For example, if the Kazakhs want to pump oil to Belarus via common pipelines, they should have equal access. If Kazakhstan wants to supply its products to Russia and Europe via Kazakh, Russian or Belarusian railways, conditions should be equal”.
Economic imbalances in Belarus grow day by day, and Belarus’ government wants to receive bonuses from Eurasian integration as soon as possible. However, Russia is not rushing, since time is on its side and allows waiting for concessions from Belarus. After the Summit, Russian President said, “I do not know , whether Belarus’ processing industry has the capacity to process the volumes it would like to receive in November-December. We need to hold bilateral Russo-Belarusian consultations and inside the Russian government in order to look for the most balanced solutions”.
In addition, President Putin has outlined a mandatory condition for providing subsidies to Belarus: “we must state clearly that we will conduct a coordinated economic policy in key spheres”.
The Belarusian government understands the long-term challenges stemming from the agreements with the Kremlin and oil revenues. Speaking earlier at the Belarusian Energy and Ecology Congress, First Deputy Prime Minister of Belarus Vladimir Semashko said, “for example, the world price of oil is USD 800 per ton, and we pay USD 380 for imported oil. But this will not last long.”
In the near future Russia and Belarus are bound to make some mutual concessions. This includes Russia’s capital participation in the sales of some Belarusian assets. However, the deeper the integration and the closer the signing date of the Eurasian Economic Union Treaty, the more contradictions Minsk and Moscow will reveal.
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.