Minsk counts on financial aid from West to reduce dependence on Kremlin
The Belarusian government aspires to expand cooperation with the EU and the United States in terms of receiving technical assistance to some economic sectors and increased international lending, in particular, obtaining a new IMF credit line. Belarus’ authorities seek aid from international financial institutions in order to reduce the growing financial dependence on the Kremlin, which may become critical in 2015. However, the Belarusian government counts on pragmatic cooperation with the West, which would not require changing the political situation in the country.
At a press conference in Minsk, Deputy Foreign Minister Guryanov said that Belarus was ready to discuss political and economic issues with the EU and the United States.
The Belarusian authorities believe they have successfully imposed their conditions in settling Belarusian-European relations and managed to reduce the political component in the dialogue to the minimum. After the Eastern Partnership Summit in Vilnius in November 2013, Belarus’ officials managed to improve their relations with Brussels without making any significant concessions.
The authorities aspire to deepen cooperation with the West on technical and economic issues. As for human rights, democratisation and civil society issues, the Belarusian government plans to confine these issues to vague discussions with Brussels and Washington and make no real steps to change the domestic political climate in the country. Deputy Foreign Minister Guryanov underscored the authorities’ intention to impose pragmatic cooperation with the West: “Fortunately, today there is a certain understanding of what [issues] Belarus is ready to discuss, including political issues our Western counterparts are interested in, and simultaneously develop economic projects which interest business”.
The Belarusian government has already taken several steps towards creating favourable conditions for cooperation with international financial institutions. For example, preparations for negotiations with the IMF about a new loan are underway - in June 2014 National Bank Chairperson Ermakova made a working visit to Vienna, where she met with the head of the Austria’s Central Bank Ewald Nowotny and IMF Executive Director Johan Pradera. Following those meetings, President Lukashenko held a meeting on economic issues with the Security Council and released one of the most significant political prisoners, human rights activist Ales Bialiatski.
In August 2014, the government approved additional structural reforms in the economy "The Plan for Balanced Economic Development in 2014-2015” and in September submitted it to the World Bank for review and recommendations. Economy Minister Snapkou underscored that structural economic reforms had already begun, but they would take some time to come to life: “They will not happen suddenly, i.e. tomorrow, these changes will require some time. Our task is to introduce them neatly, consistently, calmly, without causing any imbalances in the economy or in society."
In addition, President Lukashenko met with the World Bank’s Vice-President for Europe and Central Asia Laura Tuck and requested to expand funding to road construction projects in Belarus. He underscored that “the World Bank is the least politicised financial and economic structure, our cooperation projects and programmes speak in support of this fact”.
Amid the growing geopolitical ambitions of the Kremlin, Minsk hopes that the West will be interested in strengthening Belarus’ economic security through diversification of her public debt. Interestingly, after Belarus repays her debt to the IMF in 2015, the Kremlin will become Belarus’ main creditor. For instance, in 2014 the Russian government approved a USD 1.55 billion loan to Belarus and earlier the USD 10 billion loan for the construction of a nuclear power plant in Astravets.
The Belarusian authorities might increase their contacts with international financial institutions, including the IMF, in order to expand lending to the Belarusian economy in 2015. They might also place additional issues of governmental bonds on foreign markets. However, the authorities are not likely to hold structural economic reforms before the presidential election in 2015.
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.