Statement by the IMF Mission to the Republic of BelarusPress Release No. 13/416
October 29, 2013
An International Monetary Fund (IMF) team led by Mr. David Hofman visited Belarus during October 17–28, 2013 to hold Post-Program Monitoring discussions. The team met with Prime Minister Mikhail Myasnikovich, Chair of the Board of the National Bank of the Republic of Belarus Nadezhda Ermakova, Minister of Finance Kharkovetz, Minister of the Economy Nickolai Snopkov, officials from the Presidential Administration, and representatives from think tanks, business, and the diplomatic community.
At the conclusion of the mission, Mr. Hofman made the following statement today in Minsk:
“Owing to a mix of loose macroeconomic policies, reduced competitiveness, a weakening of the external environment, and specific factors affecting key Belarusian exports, the current account is deteriorating more sharply this year than earlier envisaged, against a background of slow growth and declining but still high inflation. In combination with high external debt repayments in 2013 and 2014, this development is a cause for concern. The current trends in the balance of payments are not sustainable and strong policy action is needed.
“The new Joint Action Plan of the government and the National Bank sends an encouraging signal that the authorities recognize policy change is needed. The mission welcomes several elements in the plan. For instance, we support the objective to transfer all directed and subsidized lending to the Development Bank and the intention to push ahead with privatization efforts. These plans are a good start and, if properly implemented, would constitute much-needed progress.
“However, more is needed to successfully rise to the challenges. As regards macroeconomic policies, the authorities need to expeditiously implement a comprehensive, consistent, and strong set of actions aimed at curtailing domestic demand and reducing balance of payments pressures. Specifically, in our view, the growth of wages and directed lending—two main contributors to the growing imbalances—should be sharply curtailed. In addition, further measures are needed to correct the deterioration of the government budget. The authorities should also ensure greater exchange rate flexibility, in the context of a tight monetary policy.
“On the structural front, deep reforms are needed to improve incentives and resource allocation in the economy. In this context, the mission welcomes the authorities’ recent efforts to enter WTO. As mentioned, the Joint Action Plan also contains welcome elements, but a more ambitious, comprehensive and frontloaded reform agenda is needed. Specific steps could include the initiation of ambitious time-bound plans for bringing utility and transport tariffs to full cost recovery and for liberalizing other prices, for reducing the role of the state in the economy—including decisive privatization and a rapid phase out of the system of mandatory targets for enterprises—and for strengthening social safety nets to protect the most vulnerable in society.
“The IMF continues to work closely with the authorities through intensive policy consultation to assist them in meeting the economic challenges. A new financial program is not under discussion at this stage but remains a possibility in the future. Such a program would require strong upfront actions and a credible commitment of all policy makers—including at the highest level—to a comprehensive and consistent package of appropriate macroeconomic policies and deep structural reform that could garner support among the IMF membership.
“The team thanks the authorities and other counterparts for the constructive and candid discussions.”