Government freezes pay rises until after presidential campaign kicks off

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April 22, 2016 18:40

Gas, electricity and thermal energy for heating and hot water have gone up in Belarus.

The government has no resources to maintain the growth in social well-being. The Belarusian authorities have made some unpopular decisions, aspiring to balance out the economy before the 2015 election campaign. The Belarusian government accumulates resources to resume its populist politics when presidential campaign starts.

In 2013, gas, electricity and thermal energy tariffs increased 7 times. Retail prices on some cigarettes and some ‘socially important goods’ went up too. Some items were excluded from lists of ‘socially important goods’. Railway tariffs also increased substantially.

In 2013, President Alexander Lukashenko managed to bump up his approval rating to 42.6%, mainly due to pay rises in January -August 2013 by 18.8 %. Such a popular rating growth would be good during the presidential campaign. However the authorities are unable to keep up with such pace of welfare growth in the coming year and a half. Back in summer 2013 Minsk City Executive Committee Chairman Ladutko said, that “we have already reached the maximum average level in Minsk”. And Finance Minister Yermolovich said that economic imbalances in 2013 increased due to unjustified wage growth.

Meanwhile, the government cannot allow a repeat of the devaluation and currency crisis of 2011, which caused the president’s approval rating to fall to a historic low of 20.5%. However, Economy Minister Nikolai Snapkou has virtually confirmed the World Bank’s assessment that the 2011 economic crisis might repeat itself: “Their assessment is natural, based on the figures that they see. But the probability of a crisis is excluded”.

The authorities are trying to choose the lesser of two evils and pick citizens’ pockets using less painful means, i.e. by raising prices by 2-3 % each quarter, not by 30% at once. The government also searches for other the least conflicting options to replenish the budget. For example, the government daily Sovetskaya Belorussia recently published a proposal by some state experts to introduce a vehicle tax in Belarus, which would include ‘an environmental tax and a parking tax’.

In the near future the government will limit the growth in the population’s well-being in order to balance out the economy. Citizens’ pockets will be picked using means that will not stir up open outrage. Meanwhile, the authorities will propose scandalous initiatives to divert public attention from what is really happening.

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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.