Minsk expects new loans from Belarus-Russia Union State
The Belarusian authorities count on Russia’s financial assistance within the Belarus-Russia Union State, which will cover the costs of servicing the public debt and maintaining economic stability during the presidential campaign in Belarus. In addition, the Belarusian authorities will attempt to negotiate special conditions for unrestrained access of Belarusian goods to the Russian market and to obtain the Kremlin’s guarantees to refrain from trade wars in 2015.
On March 2nd-3rd, President Lukashenko will visit Russia to participate in a meeting of the Supreme State Council of the Union State. According to the presidential press service, the Supreme State Council was scheduled to consider the key issues of the Union State’s operations. President Lukashenko underscored that important issues of political and economic cooperation would be discussed.
Yet back in late January 2015, Presidents of Russia and Belarus have agreed over the telephone to hold the meeting. In particular, they “agreed on joint actions to overcome the economic problems”. In early February at a meeting with Russian Prime Minister Dmitry Medvedev, Belarusian Prime Minister Kobyakov said, that the Belarusian government was developing a bilateral Russo-Belarusian anti-crisis programme. President Lukashenko promised to present the programme at the Supreme State Council’s meeting in March. The programme envisages, inter alia, restoration of the Belarusian exports to Russia.
It is worth noting, that in 2014 Belarus’ export to Russia dropped by USD 1.5 billion. Belarusian stocks were overloaded and some large state enterprises suspended operations, due to the cutbacks in exports to the Russian market. As a result, unemployment has mounted, working hours have been reduced for 146 100 workers and 89 800 workers have been offered unpaid leave. In early 2015, exports to Russia continued to reduce – in January 2015 they were 60% of those in January 2014.
The independent media reported that in early February 2015 Belarus requested a USD 2.5 billion loan from the Russian government, officially, however, these reports have not been confirmed. Meanwhile, President Lukahsenko remained confident of the Kremlin’s support: “If we suffer, Russia will lend her shoulder to us”. Russian Finance Minister Siluanov confirmed Russia’s readiness to provide financial support for Belarus. In 2015 Belarus is due USD 4 billion to repay and service her public debt, while her foreign exchange reserves totalled USD 4.7 billion in January 2015.
In addition, official Minsk is worried about yet another spiral of Russo-Belarusian trade wars amid growing recession in Russia and measures she has introduced to protect domestic market and domestic producers. The joint Russo-Belarusian anti-crisis programme should provide guarantees of free access to the Russian market for Belarusian products.
Meanwhile, experts believe, that ‘petrol’ war between Russia and Belarus is highly likely. It does not pay Belarusian refineries to export petrol to Russia due to the Russian rouble devaluation and low oil prices. However, Belarus has committed to supply 1.8 million tons of petrol to the Russian market in 2015 in exchange for 23 million tons of Russian oil and 1.5 billion worth of oil export duties. If Belarus reduces petrol supplies to Russia, the latter might review her commitments.
Official Minsk is confident that the Kremlin will provide financial and other support in order to maintain social and economic stability in Belarus in the election year. However, the Belarusian authorities are unlikely to make any significant concessions to the Kremlin regarding political and economic issues, including the privatization of state assets.
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.