Former Prime Minister Myasnikovich to ensure economic policy continuity by new government
A monitoring group led by former Prime Minister Vladimir Myasnikovich was set up in order to ensure continuity of social and economic policy by the Kobyakov’s government. The group is also a mechanism for coordinating interests of different nomenclature groups aiming to prevent misbalances in the management in the election year. Its task is to adjust the Government’s policy within the framework of the current socio-economic model in order to prevent economic destabilisation.
On February 26th, the president signed a decree establishing a monitoring group headed by Council of the Republic Chairman Mikhail Myasnikovich. The group was tasked to develop concrete proposals to address socio-economic issues in Belarus. The group’s decisions would become recommendations for the government.
Chairman of the Council of the Republic Myasnikovich outlined the monitoring group’s main objectives: to inform the population and workers about decisions made by the president and the government and to receive their feedback. In particular, Myasnikovich explained his vision of relations between people and the government: “We have a common cause. This work aims at the overall result – economic stabilisation and development”.
Recently, President Lukashenko criticised the new government and referred to the economic deterioration: “The industry is slowing down, stocks at warehouses are building up so as mutual non-payments. So far, measures undertaken to support exports have not worked out. And it all starts to affect people. Real incomes are not growing”. In January 2015, the average salary in Belarus decreased by 35% - from USD 620 to USD 400, as compared with January 2014.
The president also criticised the 2015 Government’s Action Plan. When Prime Minister Kobyakov presented the Plan in the Parliament, he tried to pre-empt accusations of the Plan envisaging "manual control" of the economy. Nevertheless, the Plan contains numerous opportunities for rapid intervention by the authorities aiming to prevent economic destabilisation. In fact, the government in 2015 has received a carte blanche to sustain current socio-economic development by short-term actions depending on the situation.
Interestingly, the Plan also contains some elements, which resemble preparatory steps to structural economic reforms. Most likely, these elements were added to the Plan in order to receive positive reviews from international creditors, such as the IMF, World Bank and other financial organisations. Despite everything, the authorities have not yet demonstrated the explicit desire to implement structural economic reforms, inter alia, reducing the state’s presence in the economy.
The authorities are willing to maintain financial and economic stability at people’s costs – by introducing new ‘taxation’ forms and by weakening social protection. If necessary, the government is ready to introduce measures aiming to raise additional budget revenues, reduce costs and prevent macroeconomic imbalances from accumulation. For instance, subsidised housing construction, which has always been one of the strongest pillars of Lukashenko’s socio-economic model, will be reduced by 30% in the election year. The authorities lack funds to increase people’s incomes in 2015, however, they will implement price control in order to support the current level of well-being.
In the year of presidential elections, the government will attempt to keep the balance between financial, economic and social stability. If external funding is not secured, the authorities might review their social policy and partially take away people’s proceeds to prevent economic destabilisation.
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.