Press Release: IMF Staff Concludes Visit to Belarus

October 28, 2014

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.

Press Release No. 14/487
October 28, 2014

An International Monetary Fund (IMF) team led by Mr. David Hofman visited Belarus during October 22–28. The team met with Prime Minister Mikhail Myasnikovich, Deputy Prime Minister Piotr Prokopovich, Chair of the Board of the National Bank of the Republic of Belarus Nadezhda Ermakova, Minister of the Economy Nikolai Snopkov, Acting Minister of Finance Maksim Ermolovich, officials from the Presidential Administration, and representatives from think tanks, business, and the diplomatic community.

At the conclusion of the mission today in Minsk, Mr. Hofman made the following statement:

“External pressures have eased somewhat on an improvement in the trade balance which reflects the resumption of potash exports and a reduction in imports as enterprises reduced their inventories and domestic demand moderated. A support loan from the Russian government helped to finance the substantial remaining current account deficit and sustained reserves, albeit at a low level. Meanwhile, GDP growth continues to be slow, but nevertheless inflation increased to over 20 percent (y-o-y).

“Partial policy tightening has helped contain demand but policies remain inconsistent. Wage growth has slowed but remains too high. Credit growth was also reduced but because directed lending volumes continue to be excessive, more viable commercial credits have unduly borne the brunt of the adjustment that was needed to lower overall lending growth.

“Without decisive further action, pressures are likely to return. The growth outlook remains difficult owing to domestic constraints and the weak external environment. Meanwhile the availability of additional external financing is highly uncertain. The trade balance is expected to deteriorate again as the destocking trend tapers off and seasonal factors weigh on imports in the later months of the year. The agreement with Russia to retain oil duties offers some relief from 2015 onward but slowing Russian growth and geopolitical tensions in the region pose downside risks.

“The government’s recent action plan contains some welcome intentions. In particular, the mission strongly supports the authorities’ aim to eliminate cross subsidization and raise selected household utility and transport tariffs to cost-recovery levels by 2017, although such efforts should be comprehensive and frontloaded. This said, without much more wide-ranging structural reforms and inclusion of strong elements on the macroeconomic policy side, the plan is unlikely to significantly reduce imbalances and improve growth prospects.

“Against this background, the recommendations of the 2014 Article IV Consultation remain highly relevant. In particular, to curb inflation and reduce external imbalances, directed lending should be reduced sharply and wages should not be raised further this year. The government needs to pursue a tighter fiscal stance to compensate for the expansionary effects of the high quasi-fiscal deficit—even more so if directed lending is not reduced. The NBRB should allow more exchange rate flexibility, while tightening monetary policy. It should also closely monitor risks in banks and decisively address any uncovered problems.

“In the area of structural reform, to reap their full benefits, recent and planned steps in the area of price liberalization should be paired with decisive and credible complementary reforms aimed at enhancing the market orientation of the economy. These should include the rapid phase out of mandatory targets for enterprises and credible plans for privatization. Social safety nets should be strengthened to protect the most vulnerable.

“A new Fund program would continue to require credible commitment to a comprehensive package of consistent and strong macroeconomic policies and deep frontloaded structural reform that could be supported by the IMF membership. If the authorities are prepared to make decisive changes to their current policies over the coming months to achieve such a strong package, the Fund stands ready to commence work toward a new program.

“The team thanks the authorities and other counterparts for engaging, candid and constructive discussions and for their warm hospitality.”

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