Minsk supports Chisinau’s European integration
Official Minsk is supportive of Moldova’s European integration as it would create more opportunities for promoting Belarus’ interests on the European market. Meanwhile, Belarus is gaining economic benefits from the pressure on Chisinau created by the Kremlin’s sanctions by re-exporting processed Moldovan products to the Russian market. In addition, the Belarusian authorities hope that by supporting Moldova’s rapprochement with the EU, they will improve their relations with Brussels.
In Chisinau, after talks with his Moldovan counterpart Nikolai Timofti, President Lukashenko called for the situation regarding the EU-Moldova Association Agreement not to be dramatised.
During his visit to Moldova, President Lukashenko spoke in favour of Moldova signing the Association Agreement with the EU, saying that, “we will not make a song and dance about this and will not create any impassable obstacles in this regard”
The Belarusian authorities count on Chisinau’s support in promoting their economic interests on the European market. They are considering entering the European market by establishing Belarus’ assembly plants in Moldova. In fact, Moldova has already been implementing such projects – Belarus assembles her agricultural equipment and trolley-buses there and has plans to launch an assembly line for Belarusian busses. In particular, President Lukashenko underscored, “For example, we’ll localise the co-production of tractors and agricultural machinery as required by the European Union; i.e. Moldova will produce some parts, [the final product] will be certified and sold to the EU as our joint product; and we’ll divide profits as usual”.
President Lukashenko visited Moldova amid the Kremlin’s sanctions pressure on Chisinau. Russia restricted imports of fresh fruits, canned vegetables and meat from Moldova after Chisinau ratified the Moldova-EU Association Agreement in July 2014. As of September 2013, the Kremlin suspended wine deliveries from Moldova to Russia. Interestingly, Russia is the main consumer of Moldovan fruits, which make up 80% of the total fruit exports to Russia.
Following Russia’s sanctions, Belarus has increased her imports of fruits. In August 2014, she imported 24 times more apples and six times more plums from Moldova. Experts do not exclude that these products could later have been re-exported to Russia from Belarus labelled as grown in Belarus.
That said, President Lukashenko still made some comments following the Kremlin’s line, but modified his tone, “we do not need more tension or dividing lines in Eurasia. We support integration within integration and in the longer term, the common economic space – from Lisbon to Vladivostok”.
All in all, Minsk aspires to gain some economic benefits from the confrontation between Russia and post-Soviet states reproaching the EU by processing products from the sanctions list and re-exporting them to the Russian market.
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.