"Social parasites" decree will be reviewed

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April 22, 2016 19:11

Following social discontent with the decree on ‘social parasites’, President Lukashenka said the regulation would be reviewed. The government is not ready to implement rigid policies and, de facto, it has decided to test-drive decisions first. Nevertheless, despite the government back out, the overall trend of tightening social framework and reducing the State’s obligations vis-à-vis citizens will remain.

The decree on ‘social parasites’ has been extensively criticized in the independent media. Many noted that the decree was inconsistent with other laws in Belarus, including the Constitution. Independent analysts said that the decree would not achieve any of its goals: if the main goal was to replenish the state budget, the implementation costs would be too high to achieve this; if the goal was to keep workers at work amid falling wages, labour mobility would still increase. In addition, it would not help restoring social justice, whatever was meant by that. Moreover, the new regulation would entail increased workload for the Tax Ministry and the labour market.

Interestingly, while the decree has been criticised only by the independent media, experts and opposition, the population has not shown any real discontent. Nevertheless, referring to the independent media, the president has found it necessary to explain the motivation behind the decree and promised to correct the shortcomings.

However, not only the criticism in the independent media has encouraged the authorities to back out with the decree. Regardless of the fact that the decree has been on the table for quite a while, interests and competencies of agencies designated to implement it have not been properly coordinated. In the last two years, the government has been making weak decisions more frequently. For instance, the Health Ministry’s clumsy attempts to lobby interests of Belarusian pharmaceuticals, by introducing exit fees for Belarusians traveling abroad, bizarre regulations by the Finance Ministry in late 2014, attempts to tighten screws for individual entrepreneurs and many other ill-considered initiatives.

The executive branch does not seem to be able to cope with the growing legislative burden (laws and decrees are drafted by the Presidential Administration department), as well as with overseeing implementation of the laws. Nevertheless, the executive is not willing to delegate some of its powers to the Parliament or other agencies.

In the given circumstances, the state is likely to reduce its social protection to the population and transfer social security burden on citizens, rather than proportionally diminish the state apparatus. Inevitably, this will lead to ill-considered decision-making that the state would be unable to implement and, consequently, would back out and review its decisions. 

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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.