Kremlin curbs public and financial support for Lukashenka
Regardless of the urgent need in loans for the Belarusian economy, the Kremlin has refrained from direct public and financial support for Lukashenka in the ongoing election campaign. In addition, from time to time, the Russian government has used information and other pressure on the Belarusian leadership, hoping to push for a Russian military base deployment in Belarus. After the presidential elections, tensions between Minsk and Moscow may rise.
Russian Ambassador to Belarus Alexander Surikov has expressed the opinion that Belarus may keep oil duties in her budget in 2016.
The Russian government has neither demonstrated public support for President Alexander Lukashenka in the election campaign, nor has it applied serious informational pressure on the Belarusian leadership. Chairman of the Federation Council of the Federal Assembly Valentina Matviyenko said that Russia was curious about the outcome of the presidential elections in Belarus, but would remain neutral to all participants. “Russia adds importance to the victory of an adequate candidate, who will be able to continue to pursue and consolidate Russo-Belarusian relations, who will continue to build the Union State and the Eurasian Economic Union”, she said.
The Kremlin has only stated that it will continue providing financial support for the Belarusian authorities in the future – without issuing new loans to Belarus in the pre-election period, when she needs them so much. For instance, Russian Ambassador to Belarus Alexander Surikov has expressed confidence that the Eurasian Fund for Stabilization and Development will provide a new loan to Belarus, however, he did not specify the date and the possible amount.
In addition, Ambassador Alexander Surikov has confirmed that the agreement regarding Belarus keeping the total volume of export duties on oil products from Russian raw materials will be extended to 2016. Moreover, according to deputy director general of the Belarusian Oil Company Grib, Minsk and Moscow have prepared the agreement for the supply of 24 million tons of Russian oil to Belarus in 2016, which is 1 million tonnes more than in 2015.
Meanwhile, the Belarusian authorities have no means to keep the current level of prosperity and employment in the pre-election period. Since early 2015, real wages have decreased in the regions and in Minsk. In August, the average wage in Belarusian roubles has reduced and in US Dollars it has decreased by USD 206 since the beginning of the year. The number of employees on unpaid leave has tripled over the year.
Apparently, the Kremlin links the provision of credit and other support to Minsk with the deployment of a Russian military air base in Belarus. The Belarusian government, however, is afraid that stronger Russian military presence in the country may reduce the opportunities to play on the contradictions between the Kremlin and the West, and may have a negative impact on the dynamics of Belarusian-European relations.
That said, the Russian government has initiated another campaign against agricultural imports from Belarus: Rosselkhoznadzor asked to clarify the origin of some goods from the sanctions list delivered to Russia from Belarus.
The probability is high that tensions between official Minsk and the Kremlin may rise after the presidential elections – over the deployment of a Russian military air base in Belarus.
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.