## 1. Real Sector Developments, 2008–13 ## Source details **Canonical URL:** [1. Real Sector Developments, 2008–13](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1418.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1418.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1418.pdf.json) --- ### Recent developments: growth, inflation, and balance of payments - Growth reached only 1.1 percent (y-o-y) in the first nine months of the year despite high wage increases and directed lending. - Inflation fell in the first half of the year but rebounded in September and remains in double-digits. - The current account balance deteriorated sharply, reaching a 9½ percent of GDP deficit in the first half of the year. - Reserves have fallen by about US$1.2 billion since the start of the year, to US$6.8 billion—about 1.7 months of imports. - Contributing factors to external deterioration: strong domestic demand growth, a slowdown in the Russian economy, weakening competitiveness of Belarusian goods, and the abrupt end of the potash cartel affecting exports. ### Banking sector and financial soundness - Average capital adequacy ratios declined to 19 percent in September, the lowest level since the large bank recapitalizations in 2011. - FX lending growth slowed in 2013 but remained high at 21 percent during January-September. - In stock terms loan dollarization reached 48 percent of total loans in September. - NPL ratios improved somewhat relative to 2012, but loan transfers to the Development Bank and strong credit growth (including directed credit) likely mask future NLPs. - Banks are under pressure from shortages in rubel funding amid the public’s increasing preference for holding foreign currency. ### Authorities’ Joint Action Plan (October) — measures and uncertainties - Plan envisages privatizations of US$4½ billion in 2014 (sale of insolvent and small enterprises and divestment of minority stakes). - Partial increases in cost recovery on utility and transport tariffs during 2013–15 (compensated by additional wage increases). - Phase out of certain price controls by end–2014 (a few were lifted in November). - Further transfer of directed lending to the Development Bank. - Implementation and high-level support of the plan remain uncertain. - Authorities continued engagement with the WTO working group on accession. ### Outlook and risks (baseline and alternative) - Baseline: GDP growth projected to be about 1.5 percent in 2013 and remain lackluster thereafter under unchanged policies. - Inflation forecast: 14.5 percent (y-o-y) at end-2013, exceeding the authorities’ 12 percent target; expected to remain in double digits subsequently under unchanged policy mix and exchange rate depreciation. - Current account projected at 9½ percent of GDP in 2013 in the context of strong domestic demand and weak competitiveness. - Staff baseline assumes gradual exchange rate depreciation to keep reserves above a minimal level but not enough to reduce external vulnerabilities; external vulnerabilities remain very high throughout the forecast period. - Downside risks: sharp further deterioration of the current account (e.g., another round of domestic policy stimulus or further erosion of competitiveness) or of the financial account (reduced capital inflows), which could trigger acute pressures on reserves and the rubel; banking sector risks from rapid FX lending expansion. - Upside risk: new agreements on bilateral financial support could mitigate short-term risks. - Alternative (adjustment) scenario: strong policy action and deep structural reform could raise reserves close to 4 months of imports by 2018, with real GDP growth around 5 percent and single-digit inflation. ### Key statistics (selected) - Real GDP growth (first nine months): 1.1 percent (y-o-y). - Current account deficit (first half): 9½ percent of GDP. - Reserves decline: about US$1.2 billion to US$6.8 billion (~1.7 months of imports). - Capital adequacy ratio (September): 19 percent. - FX lending growth (Jan–Sep 2013): 21 percent. - Loan dollarization (September): 48 percent of total loans. --- ### Fiscal policy: developments, concerns, and staff advice - Off-budget quasi-fiscal operations are a key concern; wage growth and directed lending volumes remain far too high. - Economy-wide real wages grew by 19.5 percent (y-o-y) in the first nine months of 2013, well ahead of productivity growth. - Directed and subsidized lending expanded at around 35 percent (y-o-y), or 4½ percent of GDP in flow terms. - The Development Bank has become an additional source of directed lending rather than a consolidating entity. - Headline fiscal deficit expected to reach 0.5 percent of GDP in 2013 against an original balanced budget target. - Authorities raised excise duties and deferred expenditures on goods and services and public investment to offset shortfalls; a deficit is likely in Q4 owing to additional revenue shortfalls and execution of committed spending. - Authorities are preparing a 2014 budget targeting a balanced budget but acknowledge downside risks; they are considering a 2 percentage point increase in VAT that could yield up to 0.8 percent of GDP in additional revenues (partly offset by higher direct subsidies to ease electricity price reform). Staff recommendations on fiscal policy: - Hold off on further wage increases for remainder of 2013 and for 2014 given low productivity growth. - Rapid stepwise reduction of directed lending: limit to 2 percent of GDP in 2014 and to 1 percent of GDP in 2015, with a full phase out in the medium term. - Channel all directed lending through the Development Bank so commercial banks operate on a strictly commercial basis. - Correct deterioration in the headline fiscal balance: consider additional measures to reduce the 2013 deficit and ensure return to a balanced-budget stance in 2014 while remaining current on payment obligations. - If further adjustment required, prioritize measures that synergize with structural reform (raise cost recovery on energy and transport tariffs, cut interest rate subsidies, achieve wage bill savings). - Under unchanged policies, staff suggested a surplus of 2 percent of GDP would be appropriate to curb demand and prepare for future bank recapitalization costs. Authorities’ position: - Regarded wage increases and subsidized lending as critical to growth and development strategy (addressing labor emigration, affordable housing, and agricultural support). - Acknowledged need for balanced budgets but accepted downside risks to achieving balance. ### Monetary policy: recent actions and staff advice - NBRB reduced its main policy rate—the “refinancing rate”—by 500bp to 23½ percent between March and June, broadly in line with stated intention to reduce the rate to 15 percent by year-end. - A pickup in demand for foreign currency deposits in June/July led the NBRB to partially reverse course: left the refinancing rate unchanged but implemented measures to raise domestic currency deposit rates and discourage dollarization, including: - 10 percentage point increase in the standing facility rate for overnight credit. - Increase in the reserve requirement for foreign exchange deposits from 12 to 14 percent. - Increase in the prudential risk weight for foreign currency loans from 100 to 150 percent per October 1, 2013. - Announcement that further refinancing rate reductions would be halted for the foreseeable future. - These measures curbed the uptrend in the share of FX deposits; policy stance on hold since July. Staff advice on monetary and exchange rate policy: - Reduce foreign exchange interventions to a minimum to facilitate needed rubel depreciation, narrow external imbalances, and avoid further reserve losses. - Tighten monetary policy to contain inflationary pressures and guard against disorderly exchange rate adjustment; an initial increase in the refinancing rate could help re-adjust market expectations, with readiness to tighten further if needed. - Anchor monetary policy on base money targeting as an alternative to inflation targeting given current conditions; this is in line with MCM TA mission advice and would help the NBRB gain credibility and prepare for eventual move to inflation targeting. Monetary and exchange rate context: - Since beginning of the year the rubel allowed to depreciate by only about 2 percent in nominal effective terms despite large inflation differentials and high wage increases. - Resulted in a real appreciation of 6 percent in CPI terms and around 10 percent in ULC and GDP-deflator terms for the year to date; cumulative appreciation since the 2011 devaluation is 30–45 percent depending on the measure used. - During peak pressures in June/July the NBRB intervened substantially in foreign exchange markets to support the currency; interventions have eased somewhat since. - Authorities acknowledged need for exchange rate flexibility but favored a slow pace of depreciation because of concerns about market reactions and the shallow rubel forex markets. ### Monetary policy and liquidity management (NBRB views) - The NBRB argued that monetary tightening would do little to contain demand or inflation. - Authorities conceded that high domestic deposit rates provided support for the rubel. - With monetary transmission weak due to the high volume of subsidized and directed lending, the NBRB believed further changes in policy rates would have a limited effect on lending and inflation expectations. - The NBRB agreed with staff that traction of monetary policy needed to be improved and were actively considering ways to improve liquidity management and the functioning of the interbank market. - The NBRB agreed to consider the staff recommendation to move to base-money targeting. ### Banking sector policies and FX exposure - FX lending and rubel liquidity pressures are key concerns in the banking sector. - In 2012, the NBRB imposed measures to curb FX lending growth including higher provisioning requirements and limitations on bank’s short-term FX lending. - Despite some success, foreign currency lending growth remained too high and the large stock of foreign currency loans remained a significant concern, especially in view of possible balance sheet effects from exchange rate adjustment. - The recent increase in risk weights for FX loans from 100 percent to 150 percent as of October 2013 should help further reduce lending growth. - To alleviate rubel funding shortages, the NBRB temporarily suspended reserve requirements for the three largest state banks, conditioned on remedial measures including a pause in new lending. - The largest state bank introduced a new rubel deposit instrument that insures depositors against exchange rate changes while paying a substantially higher yield (about ten percentage points) than equivalent dollar deposits. Staff views: - Strong support for measures to contain FX lending, and welcome for the increase in risk weights for FX loans. - Concern about novel forms of FX exposure on deposits and the new insured deposit instrument, which could expose the largest state bank to greater exchange rate risk and increase the cost of needed exchange rate adjustment. - Urged close monitoring of FX lending growth rates pending information on the impact of measures. NBRB views: - Concurred FX lending growth bore close watching and indicated more prudential measures would be taken if growth did not slow further. - Hopeful the new insured deposit instrument would attract depositors to rubles and alleviate rubel liquidity constraints. - Less concerned than staff about attendant exchange rate risk, assessing that only gradual and moderate rubel depreciation is warranted. ### Structural policies and reform recommendations - Progress on structural reform remains essential to raise potential growth and promote stability beyond the short term. - Deep structural reforms to promote a larger role for market mechanisms could greatly improve efficiency and competitiveness. - Staff welcomed elements of the new joint action plan and continued engagement with the WTO but stressed the need for deeper and more comprehensive reforms. Specific staff-recommended steps included: - Initiation of a time-bound plan to increase cost recovery of utility and transport tariffs to the full 100 percent. - A detailed plan for reduction of the role of the state in the economy—including a rapid phase out of the system of mandatory targets for enterprises, detailed and credible plans for large-scale privatization and enterprise restructuring. - Strengthening of social safety nets to protect the most vulnerable. Authorities’ stance: - Preferred a more gradual approach, arguing the population and business community were not ready for deeper reforms and favoring gradual implementation of selective reforms to preserve aspects of the socially oriented model and social stability. ### Capacity to repay and funding relations - Repayment capacity is being tested as peak external payments have started. - High external debt service in 2013–15—including repayments to the Fund of about US$1.6 billion in 2013, and about US$1.4 billion in 2014—in the context of a deteriorating current account and low and declining reserve levels pose serious challenges. - Significant uncertainty about projected capital inflows with attendant risks of a disorderly external adjustment. - Presence of sizable FX liabilities at the Central Bank implies a further external vulnerability. - Authorities’ financing efforts and prospects: - Expect to receive the last remaining US$440 million tranche under the ACF program by year-end. - Planning domestic FX debt issuance to help meet financing needs in 2013. - With limited access to international capital markets and abandoned Eurobond attempts, main prospective source of additional financing is new bilateral agreements; authorities indicated bilateral financing is being pursued with Russia and China, but no concrete agreements had been reached to date. - A new Fund-supported program would require credible commitment to comprehensive strong macroeconomic policies and bold, up-front structural reform measures. ### Key financing projections and reserve metrics (as presented) - Gross Financing Requirements, 2012–2014 (Millions of U.S. dollars): - 2012: -10,298 - 2013: -16,488 - 2014: -15,570 - Current account balance: - 2012: -1,688 - 2013: -6,636 - 2014: -6,171 - Amortization (MLT debt): - 2012: -2,556 - 2013: -5,376 - 2014: -4,651 - of which IMF: - 2012: -465 - 2013: -1,632 - 2014: -1,261 - Short-term debt: - 2012: -6,054 - 2013: -4,477 - 2014: -4,748 - Financing Sources: - Capital account (net): 423 - FDI (net): - 2012: 1,308 - 2013: 2,157 - 2014: 2,559 - Portfolio investment inflows (net): 1280 - Borrowing (MLT): - 2012: 4,417 - 2013: 6,867 - 2014: 5,268 - of which ACF: - 2012: 440 - 2013: 880 - 2014: 440 - Short-term financing: - 2012: 4,477 - 2013: 4,748 - 2014: 4,748 - Other net 1/: - 2012: -1,629 - 2013: 981 - 2014: 957 - Projected change in reserves (+ decrease): - 2012: -811 - 2013: 1,709 - 2014: 2,269 - Memo Item: Stock of Reserves: - 2012: 8,095 - 2013: 5,707 - 2014: 3,438 - 1/ Includes portfolio, net trade credits and other net investment assets. For 2012 also includes errors and omissions and valuation effects. ### Staff appraisal and consolidated policy recommendations - Urgent need for a strong policy response to mitigate the risk of a disorderly adjustment given widening external imbalances, sharp current account deterioration, peak repayment obligations, limited market access, and low and falling reserves. To contain domestic demand: - Halt further wage increases this year and in 2014. - Sharply reduce directed lending—to two percent of GDP in 2014, and to one percent of GDP in 2015, with a view to a full phase out over the medium term. - Channel remaining directed lending through the Development Bank to foster operation of state banks on commercial terms. Fiscal policy: - Correct deterioration of the fiscal balance. - Consider additional measures to reduce the deficit this year and ensure a return to a balanced-budget stance in 2014. - If directed lending exceeds two percent of GDP in 2014, the government should run a corresponding budget surplus to offset the demand effect and prepare for future bank recapitalization costs. Exchange rate and monetary policy: - Substantially scale back intervention in the foreign exchange market to help narrow external imbalances and prevent further loss of reserves. - Complement FX intervention scaling back with a tightening of monetary policy to help contain inflationary pressures and prevent exchange rate overshooting. - Improve monetary policy traction via better liquidity management and interbank market functioning (including consideration of base-money targeting). Banking sector: - Sustain the declining trend in FX lending growth and closely monitor trends, standing ready to take further measures if growth does not slow further. - Address rubel liquidity shortages by a combination of external adjustment, temporary liquidity support, and reductions in directed lending. - Avoid resorting to deposit instruments that expose banks to large currency risk. ### Structural reform recommendations (summary) - Authorities’ ongoing engagement with the WTO, with a view to future accession, is welcome. - The recent Joint Action Plan contains welcome elements, but a more ambitious, comprehensive and frontloaded reform agenda is needed. Specific steps recommended: - Initiation of a time-bound plan to increase cost recovery of utility and transport tariffs to the full 100 percent. - A detailed plan and significant initial steps for reducing the role of the state in the economy—including a rapid phase out of the system of mandatory targets for enterprises and credible privatization and enterprise restructuring. - Strengthening of social safety nets to protect the most vulnerable in society. ### Public debt and debt sustainability (high-level) - Headline debt ratios remain moderate at around 25 percent of GDP in 2013, but assessment is complicated by large contingent liabilities from directed and subsidized lending programs and a large stock of domestic guarantees issued by central and local governments. - Directed lending has produced a large stock of loans amounting to about 18 percent of GDP. - Baseline: Growth projection for 2014: 2½ percent. - Baseline projection by 2018: headline ratio increases to 29 percent and public+guaranteed increases to 40 percent. - Gross financing needs in 2013: just under 6 percent of GDP. - Stress-test findings: plausible shocks can substantially increase debt ratios and gross financing needs; combined macro shock can push debt-to-GDP ratio up towards 50 percent of GDP. - Contingent liability shock: a 10 percent increase in expenditures, a 100 basis point increase in interest rates, and a decline in GDP results in a 12 percentage point increase in the debt ratio and an 11 percentage point increase in gross financing need relative to the baseline. ### Selected baseline vs. adjustment scenario contrasts (selected table excerpts) - Table 1 (Baseline), Real GDP (percentage change): 2011: 5.5; 2012: 1.5; 2013: 1.5 (Prel.); 2014: 2.4; 2015: 3.1; 2016: 3.3; 2017: 3.4; 2018: 3.4. - Table 1 (Baseline), Consumer prices (End of period): 2011: 108.7; 2012: 21.8; 2013: 14.5; 2014: 15.5; 2015: 16.5; 2016: 16.5; 2017: 16.5; 2018: 16.5. - Table 1 (Baseline), Current account balance (Percent of GDP): 2011: -8.5; 2012: -2.7; 2013: -9.4; 2014: -7.6; 2015: -5.9; 2016: -5.1; 2017: -4.9; 2018: -4.7. - Table 1 (Baseline), Official reserves (billions of U.S. dollars): 2011: 7.9; 2012: 8.1; 2013: 5.7; 2014: 3.4; 2015: 2.6; 2016: 2.4; 2017: 1.9; 2018: 1.5. - Table 3 (Adjustment), Real GDP (percentage change): 2011: 5.5; 2012: 1.5; 2013: 1.5 (Prel.); 2014: 1.4; 2015: 2.5; 2016: 3.5; 2017: 4.2; 2018: 5.1. - Table 3 (Adjustment), Consumer prices (End of period): 2011: 108.7; 2012: 21.8; 2013: 14.5; 2014: 9.9; 2015: 9.5; 2016: 8.8; 2017: 7.6; 2018: 6.7. - Table 3 (Adjustment), Current account balance (Percent of GDP): 2011: -8.5; 2012: -2.7; 2013: -9.4; 2014: -6.9; 2015: -5.2; 2016: -2.8; 2017: -1.7; 2018: -0.3. ### General government and fiscal tables (selected figures, percent of GDP) - General government Revenue: 38.8 40.8 38.7 39.4 39.4 39.4 39.4 39.4 - General government Expenditure: 36.0 40.1 39.2 40.3 40.7 41.0 41.6 42.1 - General government Balance: 2.8 0.7 -0.5 -0.9 -1.3 -1.6 -2.2 -2.7 - Off-Balance sheet operations: -5.6 -0.2 -0.3 -2.8 -2.8 -2.8 -2.8 -2.8 - Augmented balance 2/: -2.9 0.5 -0.8 -3.7 -4.1 -4.4 -5.0 -5.5 - Financing (cash): 2.9 -0.5 0.8 3.7 4.1 4.4 5.0 5.5 - Memorandum item: Augmented general government balance with new directed lending: -12.1 -4.1 -5.2 -8.1 -8.5 -8.9 -9.4 -9.9 - Of which: new directed lending (incl. Development Bank) 4/: 9.3 4.6 4.4 4.4 4.4 4.4 4.4 4.4 - Gross public debt 5/: 45.9 38.7 35.8 35.6 34.2 35.5 37.2 39.2 - GDP (trillions of Belarusian rubels): 297 527 670 857 1,052 1,270 1,517 1,796 ### Selected economic indicators (selected figures) - Real GDP: 2009: 0.1; 2010: 7.7; 2011: 5.5; 2012: 1.5; 2013: 1.5 - Total domestic demand: 2009: -1.7; 2010: 11.5; 2011: 3.4; 2012: 3.7; 2013: 5.8 - Consumer prices (end of period): 2009: 10.1; 2010: 9.9; 2011: 108.7; 2012: 21.8; 2013: 14.5 - Current account (percent of GDP): 2009: -12.6; 2010: -15.0; 2011: -8.5; 2012: -2.7; 2013: -9.4 - Gross external debt (percent of GDP): 2009: 45.6; 2010: 52.1; 2011: 57.7; 2012: 54.5; 2013: 51.2 - Public gross consolidated debt (percent of GDP): 2009: 18.9; 2010: 22.6; 2011: 25.0; 2012: 23.3; 2013: 21.3 - Official reserves (billions of U.S. dollars): 2009: 5.7; 2010: 5.0; 2011: 7.9; 2012: 8.1; 2013: 5.7 - Months of imports of goods and services: 2009: 1.8; 2010: 1.3; 2011: 1.9; 2012: 2.1; 2013: 1.4 ### Authorities’ perspectives and program cooperation - Authorities expect to receive the last remaining US$440 million tranche under the ACF program by year-end. - Authorities plan domestic FX debt issuance to help meet financing needs in 2013 and are pursuing bilateral financing with Russia and China. - Joint Action Plan (JAP) adopted October 10, 2013 contains actions across fiscal, monetary and exchange rate policies, state asset management, utility tariff reform, competition, and anti-trust framework. - Authorities continue engagement with the WTO and cooperation with the World Bank on privatization, social impact of reforms, labor market reforms and social safety nets. --- *Source: IMF staff report — 1. Real Sector Developments, 2008–13; IMF staff calculations; Belarusian authorities.* ### 1. Real Sector Developments, 2008–13 ___________________________________________________________ 17 ### 1. Real Sector Developments, 2008–13 ### Recent developments: growth, inflation, and balance of payments - Growth reached only 1.1 percent (y-o-y) in the first nine months of the year despite high wage increases and directed lending. - Inflation fell in the first half of the year but rebounded in September and remains in double-digits. - The current account balance deteriorated sharply, reaching a 9½ percent of GDP deficit in the first half of the year. - Reserves have fallen by about US$1.2 billion since the start of the year, to US$6.8 billion—about 1.7 months of imports. - Contributing factors to external deterioration: strong domestic demand growth, a slowdown in the Russian economy, weakening competitiveness of Belarusian goods, and the abrupt end of the potash cartel affecting exports. ### Banking sector and financial soundness - Average capital adequacy ratios declined to 19 percent in September, the lowest level since the large bank recapitalizations in 2011. - FX lending growth slowed in 2013 but remained high at 21 percent during January-September. - In stock terms loan dollarization reached 48 percent of total loans in September. - NPL ratios improved somewhat relative to 2012, but loan transfers to the Development Bank and strong credit growth (including directed credit) likely mask future NLPs. - Banks are under pressure from shortages in rubel funding amid the public’s increasing preference for holding foreign currency. ### Authorities’ joint action plan (October) - Plan envisages privatizations of US$4½ billion in 2014 (sale of insolvent and small enterprises and divestment of minority stakes). - Partial increases in cost recovery on utility and transport tariffs during 2013–15 (compensated by additional wage increases). - Phase out of certain price controls by end–2014 (a few were lifted in November). - Further transfer of directed lending to the Development Bank. - Implementation and high-level support of the plan remain uncertain. - Authorities continued engagement with the WTO working group on accession. ### Key statistics (selected) - Real GDP growth (first nine months): 1.1 percent (y-o-y). - Current account deficit (first half): 9½ percent of GDP. - Reserves decline: about US$1.2 billion to US$6.8 billion (~1.7 months of imports). - Capital adequacy ratio (September): 19 percent. - FX lending growth (Jan–Sep 2013): 21 percent. - Loan dollarization (September): 48 percent of total loans. --- ### Outlook and risks - Baseline: GDP growth projected to be about 1.5 percent in 2013 and remain lackluster thereafter under unchanged policies. - Inflation forecast: 14.5 percent (y-o-y) at end-2013, exceeding the authorities’ 12 percent target; expected to remain in double digits subsequently under unchanged policy mix and exchange rate depreciation. - Current account projected at 9½ percent of GDP in 2013 in the context of strong domestic demand and weak competitiveness. - Staff baseline assumes gradual exchange rate depreciation to keep reserves above a minimal level but not enough to reduce external vulnerabilities; external vulnerabilities remain very high throughout the forecast period. - Downside risks: sharp further deterioration of the current account (e.g., another round of domestic policy stimulus or further erosion of competitiveness) or of the financial account (reduced capital inflows), which could trigger acute pressures on reserves and the rubel; banking sector risks from rapid FX lending expansion. - Upside risk: new agreements on bilateral financial support could mitigate short-term risks. - Alternative (adjustment) scenario: strong policy action and deep structural reform could raise reserves close to 4 months of imports by 2018, with real GDP growth around 5 percent and single-digit inflation. --- ### Policy discussions: overview - Discussions focused on macroeconomic policy adjustments to address near-term challenges and selected structural reforms needed for sustainable long-term growth. - Staff emphasized that without reforms Belarus will continue to lose competitiveness and remain highly vulnerable to external pressures. ### Fiscal policy: developments, concerns, and staff advice - Off-budget quasi-fiscal operations are a key concern; wage growth and directed lending volumes remain far too high. - Economy-wide real wages grew by 19.5 percent (y-o-y) in the first nine months of 2013, well ahead of productivity growth. - Directed and subsidized lending expanded at around 35 percent (y-o-y), or 4½ percent of GDP in flow terms. - The Development Bank has become an additional source of directed lending rather than a consolidating entity. - Headline fiscal deficit expected to reach 0.5 percent of GDP in 2013 against an original balanced budget target. - Authorities raised excise duties and deferred expenditures on goods and services and public investment to offset shortfalls; a deficit is likely in Q4 owing to additional revenue shortfalls and execution of committed spending. - Authorities are preparing a 2014 budget targeting a balanced budget but acknowledge downside risks; they are considering a 2 percentage point increase in VAT that could yield up to 0.8 percent of GDP in additional revenues (partly offset by higher direct subsidies to ease electricity price reform). Staff recommendations on fiscal policy: - Hold off on further wage increases for remainder of 2013 and for 2014 given low productivity growth. - Rapid stepwise reduction of directed lending: limit to 2 percent of GDP in 2014 and to 1 percent of GDP in 2015, with a full phase out in the medium term. - Channel all directed lending through the Development Bank so commercial banks operate on a strictly commercial basis. - Correct deterioration in the headline fiscal balance: consider additional measures to reduce the 2013 deficit and ensure return to a balanced-budget stance in 2014 while remaining current on payment obligations. - If further adjustment required, prioritize measures that synergize with structural reform (raise cost recovery on energy and transport tariffs, cut interest rate subsidies, achieve wage bill savings). - Under unchanged policies, staff suggested a surplus of 2 percent of GDP would be appropriate to curb demand and prepare for future bank recapitalization costs. Authorities’ position: - Regarded wage increases and subsidized lending as critical to growth and development strategy (addressing labor emigration, affordable housing, and agricultural support). - Acknowledged need for balanced budgets but accepted downside risks to achieving balance. ### Monetary policy: recent actions and staff advice - NBRB reduced its main policy rate—the “refinancing rate”—by 500bp to 23½ percent between March and June, broadly in line with stated intention to reduce the rate to 15 percent by year-end. - A pickup in demand for foreign currency deposits in June/July led the NBRB to partially reverse course: left the refinancing rate unchanged but implemented measures to raise domestic currency deposit rates and discourage dollarization, including: - 10 percentage point increase in the standing facility rate for overnight credit. - Increase in the reserve requirement for foreign exchange deposits from 12 to 14 percent. - Increase in the prudential risk weight for foreign currency loans from 100 to 150 percent per October 1, 2013. - Announcement that further refinancing rate reductions would be halted for the foreseeable future. - These measures curbed the uptrend in the share of FX deposits; policy stance on hold since July. Staff advice on monetary and exchange rate policy: - Reduce foreign exchange interventions to a minimum to facilitate needed rubel depreciation, narrow external imbalances, and avoid further reserve losses. - Tighten monetary policy to contain inflationary pressures and guard against disorderly exchange rate adjustment; an initial increase in the refinancing rate could help re-adjust market expectations, with readiness to tighten further if needed. - Anchor monetary policy on base money targeting as an alternative to inflation targeting given current conditions; this is in line with MCM TA mission advice and would help the NBRB gain credibility and prepare for eventual move to inflation targeting. Monetary and exchange rate context: - Since beginning of the year the rubel allowed to depreciate by only about 2 percent in nominal effective terms despite large inflation differentials and high wage increases. - Resulted in a real appreciation of 6 percent in CPI terms and around 10 percent in ULC and GDP-deflator terms for the year to date; cumulative appreciation since the 2011 devaluation is 30–45 percent depending on the measure used. - During peak pressures in June/July the NBRB intervened substantially in foreign exchange markets to support the currency; interventions have eased somewhat since. - Authorities acknowledged need for exchange rate flexibility but favored a slow pace of depreciation because of concerns about market reactions and the shallow rubel forex markets. --- *Source: IMF staff report — 1. Real Sector Developments, 2008–13.* ### 20. The NBRB argued that monetary tightening would do little to contain demand or ### _cr1418 - 20. The NBRB argued that monetary tightening would do little to contain demand or ### Monetary policy and liquidity management - The NBRB argued that monetary tightening would do little to contain demand or inflation. - Authorities conceded that high domestic deposit rates provided support for the rubel. - With monetary transmission weak due to the high volume of subsidized and directed lending, the NBRB believed further changes in policy rates would have a limited effect on lending and inflation expectations. - The NBRB agreed with staff that traction of monetary policy needed to be improved and were actively considering ways to improve liquidity management and the functioning of the interbank market. - The NBRB agreed to consider the staff recommendation to move to base-money targeting. ### Banking sector policies and FX exposure - FX lending and rubel liquidity pressures are key concerns in the banking sector. - In 2012, the NBRB imposed measures to curb FX lending growth including higher provisioning requirements and limitations on bank’s short-term FX lending. - Despite some success, foreign currency lending growth remained too high and the large stock of foreign currency loans remained a significant concern, especially in view of possible balance sheet effects from exchange rate adjustment. - The recent increase in risk weights for FX loans from 100 percent to 150 percent as of October 2013 should help further reduce lending growth. - To alleviate rubel funding shortages, the NBRB temporarily suspended reserve requirements for the three largest state banks, conditioned on remedial measures including a pause in new lending. - The largest state bank introduced a new rubel deposit instrument that insures depositors against exchange rate changes while paying a substantially higher yield (about ten percentage points) than equivalent dollar deposits. - Staff views: - Strong support for measures to contain FX lending, and welcome for the increase in risk weights for FX loans. - Concern about novel forms of FX exposure on deposits and the new insured deposit instrument, which could expose the largest state bank to greater exchange rate risk and increase the cost of needed exchange rate adjustment. - Urged close monitoring of FX lending growth rates pending information on the impact of measures. - NBRB views: - Concurred FX lending growth bore close watching and indicated more prudential measures would be taken if growth did not slow further. - Hopeful the new insured deposit instrument would attract depositors to rubles and alleviate rubel liquidity constraints. - Less concerned than staff about attendant exchange rate risk, assessing that only gradual and moderate rubel depreciation is warranted. ### Structural policies - Progress on structural reform remains essential to raise potential growth and promote stability beyond the short term. - Deep structural reforms to promote a larger role for market mechanisms could greatly improve efficiency and competitiveness. - Staff welcomed elements of the new joint action plan and continued engagement with the WTO but stressed the need for deeper and more comprehensive reforms. - Specific staff-recommended steps included: - Initiation of a time-bound plan to increase cost recovery of utility and transport tariffs to the full 100 percent. - A detailed plan for reduction of the role of the state in the economy—including a rapid phase out of the system of mandatory targets for enterprises, detailed and credible plans for large-scale privatization and enterprise restructuring. - Strengthening of social safety nets to protect the most vulnerable. - Authorities preferred a more gradual approach, arguing the population and business community were not ready for deeper reforms and favoring gradual implementation of selective reforms to preserve aspects of the socially oriented model and social stability. ### Capacity to repay and funding relations - Repayment capacity is being tested as peak external payments have started. - High external debt service in 2013–15—including repayments to the Fund of about US$1.6 billion in 2013, and about US$1.4 billion in 2014—in the context of a deteriorating current account and low and declining reserve levels pose serious challenges. - Significant uncertainty about projected capital inflows with attendant risks of a disorderly external adjustment. - Presence of sizable FX liabilities at the Central Bank implies a further external vulnerability. - Authorities’ financing efforts and prospects: - Expect to receive the last remaining US$440 million tranche under the ACF program by year-end. - Planning domestic FX debt issuance to help meet financing needs in 2013. - With limited access to international capital markets and abandoned Eurobond attempts, main prospective source of additional financing is new bilateral agreements; authorities indicated bilateral financing is being pursued with Russia and China, but no concrete agreements had been reached to date. - A new Fund-supported program would require credible commitment to comprehensive strong macroeconomic policies and bold, up-front structural reform measures. ### Key financing projections and reserve metrics (as presented) - Gross Financing Requirements, 2012–2014 (Millions of U.S. dollars): - 2012: -10,298 - 2013: -16,488 - 2014: -15,570 - Current account balance: - 2012: -1,688 - 2013: -6,636 - 2014: -6,171 - Amortization (MLT debt): - 2012: -2,556 - 2013: -5,376 - 2014: -4,651 - of which IMF: - 2012: -465 - 2013: -1,632 - 2014: -1,261 - Short-term debt: - 2012: -6,054 - 2013: -4,477 - 2014: -4,748 - Financing Sources: - Capital account (net): 423 - FDI (net): - 2012: 1,308 - 2013: 2,157 - 2014: 2,559 - Portfolio investment inflows (net): 1280 - Borrowing (MLT): - 2012: 4,417 - 2013: 6,867 - 2014: 5,268 - of which ACF: - 2012: 440 - 2013: 880 - 2014: 440 - Short-term financing: - 2012: 4,477 - 2013: 4,748 - 2014: 4,748 - Other net 1/: - 2012: -1,629 - 2013: 981 - 2014: 957 - Projected change in reserves (+ decrease): - 2012: -811 - 2013: 1,709 - 2014: 2,269 - Memo Item: Stock of Reserves: - 2012: 8,095 - 2013: 5,707 - 2014: 3,438 - 1/ Includes portfolio, net trade credits and other net investment assets. For 2012 also includes errors and omissions and valuation effects. ### Staff appraisal and policy recommendations - Urgent need for a strong policy response to mitigate the risk of a disorderly adjustment given widening external imbalances, sharp current account deterioration, peak repayment obligations, limited market access, and low and falling reserves. - To contain domestic demand: - Halt further wage increases this year and in 2014. - Sharply reduce directed lending—to two percent of GDP in 2014, and to one percent of GDP in 2015, with a view to a full phase out over the medium term. - Channel remaining directed lending through the Development Bank to foster operation of state banks on commercial terms. - Fiscal policy: - Correct deterioration of the fiscal balance. - Consider additional measures to reduce the deficit this year and ensure a return to a balanced-budget stance in 2014. - If directed lending exceeds two percent of GDP in 2014, the government should run a corresponding budget surplus to offset the demand effect and prepare for future bank recapitalization costs. - Exchange rate and monetary policy: - Substantially scale back intervention in the foreign exchange market to help narrow external imbalances and prevent further loss of reserves. - Complement FX intervention scaling back with a tightening of monetary policy to help contain inflationary pressures and prevent exchange rate overshooting. - Improve monetary policy traction via better liquidity management and interbank market functioning (including consideration of base-money targeting). - Banking sector: - Sustain the declining trend in FX lending growth and closely monitor trends, standing ready to take further measures if growth does not slow further. - Address rubel liquidity shortages by a combination of external adjustment, temporary liquidity support, and reductions in directed lending. - Avoid resorting to deposit instruments that expose banks to large currency risk. *Source: IMF staff calculations; Belarusian authorities.* ### 35. Decisive structural reform remains essential to raise potential growth and promote ### _cr1418 - 35. Decisive structural reform remains essential to raise potential growth and promote ### Structural reform recommendations - Authorities’ ongoing engagement with the WTO, with a view to future accession, is welcome. - The recent Joint Action Plan contains welcome elements, but a more ambitious, comprehensive and frontloaded reform agenda is needed. - Specific steps recommended: - Initiation of a time-bound plan to increase cost recovery of utility and transport tariffs to the full 100 percent. - A detailed plan and significant initial steps for reducing the role of the state in the economy—including a rapid phase out of the system of mandatory targets for enterprises and credible privatization and enterprise restructuring. - Strengthening of social safety nets to protect the most vulnerable in society. ### Real sector developments (2008–13) - The recovery after the 2011 balance of payments crisis has been rocky. - Consumption and investment remain volatile. - Before 2011 Belarus enjoyed growth rates substantially above its main trading partners (Belarus, Russia, Ukraine, Euro area). - Output gap estimates indicate the economy remains broadly at potential, suggesting that stronger growth measures will increase inflation risks. ### Inflation and wage developments (2010–13) - Consumer and producer price inflation have been slowing down. - Wages continue to rise rapidly. - Inflation in Belarus remains sharply higher than in its main trading partners. - Inflation expectations remain high; survey of "Expected Change in Inflation in Next Three Months" shows sizable shares expecting inflation "Will grow". ### External sector (2008–13) - Exchange rate unification in 2011 contributed to the realignment of the REER with fundamentals, but the rubel has been appreciating since then in real terms. - A temporary spike in solvents exports (non-energy) improved the trade balance in 2012 H1, but it is now deteriorating again. - Last year's improvement in the current account is unlikely to last. - Foreign exchange reserves have recently been falling and reached $6.8 billion. ### Baseline and adjustment scenarios (2012–18) — selected scenario contrasts - GDP Growth (year-on-year percent change): baseline scenario and adjustment scenario trajectories are plotted for 2012–2018 (figures provided). - Domestic Demand Growth (year-on-year percent change): baseline scenario and adjustment scenario trajectories are plotted for 2012–2018. - Inflation (end of period, percent): baseline scenario and adjustment scenario trajectories are plotted for 2012–2018. - Current Account Balance (Percent of GDP): baseline scenario and adjustment scenario trajectories are plotted for 2012–2018. - External Debt (Percent of GDP): baseline scenario and adjustment scenario trajectories are plotted for 2012–2018. - Reserves/Months of Imports: baseline scenario and adjustment scenario trajectories are plotted for 2012–2018. - Note: The broadly constant external debt-to-GDP ratio in the baseline scenario is explained by an assumption that the gaps in the balance of payments are financed by drawdown of foreign exchange reserves rather than by external borrowing. ### Fiscal developments (2008–13) - Authorities' methodology shows a fiscal measure that appears tighter than augmented measures which include outlays for bank recapitalizations and guaranteed debt and directed lending. - Total public and publicly guaranteed debt: domestic debt has grown in recent years but fell in 2012 owing to high inflation. - Budget sector wage costs are on an upward trend. - External public debt also rose in recent years. ### Monetary developments (2010–13) - Following a pause, the NBRB reduced its refinancing rate in early 2013. - Despite NBRB's mopping-up operations excess bank liquidity remains significant. - Growth of credit to the economy remains high at about 33 percent. - The NBRB's credit to banks has leveled off. - Household term deposits: deposits dollarization has been volatile. - Share of FX Loans (Percent of Total): dollarization of loans is rising fast for corporates and total. ### Key statistics and projections (selected from tables) - Table 1 (Baseline Scenario), Real GDP (percentage change): 2011: 5.5; 2012: 1.5; 2013: 1.5 (Prel.); 2014: 2.4; 2015: 3.1; 2016: 3.3; 2017: 3.4; 2018: 3.4. - Table 1 (Baseline), Consumer prices (End of period): 2011: 108.7; 2012: 21.8; 2013: 14.5; 2014: 15.5; 2015: 16.5; 2016: 16.5; 2017: 16.5; 2018: 16.5. - Table 1 (Baseline), Current account balance (Percent of GDP): 2011: -8.5; 2012: -2.7; 2013: -9.4; 2014: -7.6; 2015: -5.9; 2016: -5.1; 2017: -4.9; 2018: -4.7. - Table 1 (Baseline), Gross external debt (Percent of GDP): 2011: 57.7; 2012: 54.5; 2013: 51.2; 2014: 46.2; 2015: 44.1; 2016: 43.1; 2017: 42.4; 2018: 41.8. - Table 1 (Baseline), Official reserves (billions of U.S. dollars): 2011: 7.9; 2012: 8.1; 2013: 5.7; 2014: 3.4; 2015: 2.6; 2016: 2.4; 2017: 1.9; 2018: 1.5. - Table 2 (Balance of Payments, Baseline, in millions of U.S. dollars), Gross official reserves (end-of-period): 2011: 7,916; 2012: 8,095; 2013: 5,707; 2014: 3,438; 2015: 2,626; 2016: 2,367; 2017: 1,923; 2018: 1,524. - Table 2 (Balance of Payments, Baseline), Current account balance (in percent of GDP): 2011: -8.5; 2012: -2.7; 2013: -9.4; 2014: -7.6; 2015: -5.9; 2016: -5.1; 2017: -4.9; 2018: -4.7. - Table 3 (Adjustment Scenario), Real GDP (percentage change): 2011: 5.5; 2012: 1.5; 2013: 1.5 (Prel.); 2014: 1.4; 2015: 2.5; 2016: 3.5; 2017: 4.2; 2018: 5.1. - Table 3 (Adjustment), Consumer prices (End of period): 2011: 108.7; 2012: 21.8; 2013: 14.5; 2014: 9.9; 2015: 9.5; 2016: 8.8; 2017: 7.6; 2018: 6.7. - Table 3 (Adjustment), Current account balance (Percent of GDP): 2011: -8.5; 2012: -2.7; 2013: -9.4; 2014: -6.9; 2015: -5.2; 2016: -2.8; 2017: -1.7; 2018: -0.3. - Table 4 (Fiscal indicators, Baseline), State budget revenue (Percent of GDP): 2011: 28.8; 2012: 30.0; 2013: 27.9; 2014: 28.6; 2015: 28.6; 2016: 28.6; 2017: 28.6; 2018: 28.6. - Table 4 (Fiscal indicators, Baseline), State Budget Balance (Percent of GDP): 2011: 2.1; 2012: 0.5; 2013: -0.5; 2014: -0.8; 2015: -1.1; 2016: -1.3; 2017: -1.8; 2018: -2.2. - Table 4 (Social Protection Fund), Revenue (Percent of GDP): 2011: 10.0; 2012: 10.8; 2013: 10.8; 2014: 10.8; 2015: 10.8; 2016: 10.8; 2017: 10.8; 2018: 10.8. - Table 4 (Social Protection Fund), Expenditure (Percent of GDP): 2011: 9.3; 2012: 10.7; 2013: 10.8; 2014: 10.9; 2015: 11.0; 2016: 11.1; 2017: 11.2; 2018: 11.3. *International Monetary Fund — Republic of Belarus (excerpts from chapter).* ### 3. General government ### 3. General government ### General government (percent of annual GDP, unless otherwise indicated) - Revenue: 38.8 40.8 38.7 39.4 39.4 39.4 39.4 39.4 - Expenditure: 36.0 40.1 39.2 40.3 40.7 41.0 41.6 42.1 - Balance: 2.8 0.7 -0.5 -0.9 -1.3 -1.6 -2.2 -2.7 - Off-Balance sheet operations: -5.6 -0.2 -0.3 -2.8 -2.8 -2.8 -2.8 -2.8 - Bank restructuring measures: -4.9 0.0 0.0 -2.0 -2.0 -2.0 -2.0 -2.0 - Net lending to financial institutions: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Outlays related to guaranteed debt: -0.7 -0.2 -0.3 -0.8 -0.8 -0.8 -0.8 -0.8 - Augmented balance 2/: -2.9 0.5 -0.8 -3.7 -4.1 -4.4 -5.0 -5.5 - Statistical discrepancy: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Notes: - 2/ The augmented balance adds to the balance of the general government outlays for banks recapitalizations and outlays related to called guarantees of publicly guaranteed debt. Projected bank recapitalization costs over the medium term are based on 2008-11 historical average. - 3/ Includes unidentified financing that is assumed to be filled by government domestic borrowing. ### Financing (cash) and related items (percent of GDP) - Financing (cash): 2.9 -0.5 0.8 3.7 4.1 4.4 5.0 5.5 - Privatization: 7.3 0.0 0.1 1.0 1.0 1.0 1.0 1.0 - Foreign financing, net: 3.1 -0.7 -0.9 -1.4 -1.2 0.8 0.7 0.5 - Domestic financing, net 3/: -7.5 0.2 1.6 4.1 4.3 2.6 3.3 4.0 Notes: - 3/ Includes unidentified financing that is assumed to be filled by government domestic borrowing. - 4/ Net changes in stock at current exchange rate. ### Memorandum items (percent of GDP unless otherwise indicated) - Augmented general government balance with new directed lending: -12.1 -4.1 -5.2 -8.1 -8.5 -8.9 -9.4 -9.9 - Of which: new directed lending (incl. Development Bank) 4/: 9.3 4.6 4.4 4.4 4.4 4.4 4.4 4.4 - Gross public debt 5/: 45.9 38.7 35.8 35.6 34.2 35.5 37.2 39.2 - GDP (trillions of Belarusian rubels): 297 527 670 857 1,052 1,270 1,517 1,796 Notes: - 4/ Net changes in stock at current exchange rate. - 5/ Gross consolidated debt of the public sector (central bank and general government debt including publicly guaranteed debt). Sources: Ministry of Finance; SPF; and IMF staff estimates. *International Monetary Fund, Table 5. Belarus: General Government Accounts, GFSM2001 Presentation, 2008–12 1/* ### Appendix III. Belarus: Public Debt Sustainability Analysis ### Appendix III. Belarus: Public Debt Sustainability Analysis ### Assessing public sector debt dynamics - Headline debt ratios remain moderate at around 25 percent of GDP in 2013, but assessment is complicated by large contingent liabilities from directed and subsidized lending programs and a large stock of domestic guarantees issued by central and local governments. - Quasi-fiscal operations, changes to the macroeconomic environment, large external financing requirements, and limited market access weigh on the medium-term outlook. - Directed lending has produced a large stock of loans amounting to about 18 percent of GDP. - The authorities issued lower cost foreign currency domestic debt in place of local currency debt over the last year, reducing short-run debt servicing costs. - Baseline assumes increasing interest rates over the medium term and significant privatization proceeds (noting considerable uncertainty around privatization receipts given limited recent receipts). ### Baseline and realism of projections - Growth - Growth projection for 2014: 2½ percent. - Growth projected to remain moderate over the medium term; risks of negative growth shocks remain high. - Fiscal outlook - Primary deficit projected to weaken over the medium term. - Near-term deterioration driven by lower revenues from weaker export receipts and higher subsidies. - Off-balance sheet operations—particularly bank recapitalizations and expenditures on called government guarantees—are projected to be main factors contributing to weakening fiscal outcomes. - Baseline assumes bank recapitalization costs of 2 percentage points of GDP per year in line with recent history. - Deteriorating demographics will put pressure on the Social Protection Fund over the medium term. - Debt levels - Headline debt ratio (excludes directed lending and guarantees): just under 25 percent of GDP in 2013. - Public debt and government-guaranteed debt: almost 36 percent of GDP in 2013. - Baseline projection by 2018: headline ratio increases to 29 percent and public+guaranteed increases to 40 percent. - Financing requirements - Gross financing needs in 2013: just under 6 percent of GDP. - Gross financing needs ratio projected to double over the medium term as a large proportion of the external debt stock matures. - External debt-to-GDP ratio projected to decline from 18 percent in 2013 to 12 percent by 2018. - To offset loss of external financing, assumption of a move to higher cost shorter maturity domestic debt, driving up gross financing needs. ### Shocks and stress tests — main scenarios and impacts - General finding: debt dynamics are vulnerable to changes in the interest rate-growth differential and the exchange rate; plausible shocks can substantially increase debt ratios and gross financing needs. While debt ratios do not exceed 40 percent in many scenarios, gross financing needs could exceed 15 percent of GDP under severe shocks. - Growth shock - Real output growth rates lowered during 2014–15. - Impact by 2018: public debt ratio increases by 12 percentage points of GDP relative to baseline; gross financing needs ratio in 2018 increases by 3.2 percent relative to baseline. - Interest rate shock - Scenario examines increase in spreads by 700 basis points. - Deterioration in debt and gross financing need ratios is back-loaded as old debt matures and higher-rate debt is contracted; by 2018 impact on financing needs is large. - Exchange rate shock - Assumes 15 percent devaluation in the real exchange rate in 2014. - Results in a significant near-term increase in debt ratios and gross financing needs. - Primary balance shock - Assumes a revenue shock and rise in interest rates leading to a cumulative 1.5 percentage points of GDP deterioration in the primary balance. - Combined shocks deteriorate debt ratio and gross financing needs, though impact is more muted than in other scenarios. - Combined macro shock - Comprises a recession in 2014–15, a 500 basis point increase in interest rates, and a sharp rise in expenditures. - Pushes debt-to-GDP ratio up towards 50 percent of GDP, coupled with a sizable increase in gross financing needs. - Contingent liability shock - Assumes a 10 percent increase in expenditures, a 100 basis point increase in interest rates, and a decline in GDP. - Results: a 12 percentage point increase in the debt ratio and an 11 percentage point increase in gross financing need relative to the baseline. ### Risk assessment and debt-profile vulnerabilities (high-level) - Stress tests highlight high vulnerability of Belarus’ public-sector debt to: - Negative growth shocks (largest single impact on debt and financing needs). - Large increases in interest rate spreads (assumed up to 700 basis points in one scenario). - Real exchange rate depreciation (assumed 15 percent in one scenario). - Gross financing needs are a key metric of concern: scenarios indicate they could exceed the 15 percent of GDP benchmark under adverse shocks. ### Baseline projections and identified debt-creating flows (high-level) - Baseline dynamics driven by: - Primary deficits (near term and medium term weakening). - Automatic debt dynamics from an unfavorable interest rate/growth differential over the medium term. - Other identified debt-creating flows including projected bank recapitalizations and called government guarantees (noted in baseline as a recurring item). - The baseline assumes significant privatization proceeds, but there is considerable uncertainty around realizing those receipts given limited recent collections. ### Composition of public debt and alternative scenarios (high-level) - Public debt composition and dynamics reflect: - A shift toward foreign-currency domestic debt issuance in the recent year (reducing short-run servicing costs). - Projected move to higher-cost, shorter-maturity domestic debt to replace maturing external debt across the medium term. - Alternative scenarios considered include a Historical Scenario and a Constant Primary Balance Scenario, illustrating sensitivity to assumptions on growth, inflation, primary balance, and effective interest rates. *Source: IMF staff.* ### 418.8 percent of quota) was approved by the Executive Board (Country Report No. 09/109) on ### _cr1418 - 418.8 percent of quota) was approved by the Executive Board (Country Report No. 09/109) on ### IMF Financial Support and Program Outcomes - An SBA (Stand-By Arrangement) was approved by the Executive Board on January 12, 2009. - An augmentation of the SBA was approved on June 29, 2009 in conjunction with the completion of the first review, bringing the Fund’s financial support to SDR 2.3 billion (about US$3.5 billion, 587.3 percent of quota). - The final review was completed on March 26, 2010. - Total disbursements under the program amounted to SDR 2.3 billion (about US$3.5 billion). ### FSAP Participation, ROSCs, and OFC Assessments - Two FSAP missions took place in 2004; the published FSSA report can be found at: http://www.imf.org/external/pubs/cat/longres.cfm?sk=18367.0 - Detailed assessment reports disseminated in May 2006: - Basel Core Principles for Effective Banking Supervision on May 18, 2006 (http://www.imf.org/external/pubs/cat/longres.cfm?sk=19246.0) - Transparency of Monetary Policy and Banking Supervision on May 18, 2006 (http://www.imf.org/external/pubs/cat/longres.cfm?sk=19248.0) - Technical Note - Deposit Insurance on May 18, 2006 (http://www.imf.org/external/pubs/cat/longres.cfm?sk=19250.0) - Detailed Assessment Report on Anti-Money Laundering and Combating the Financing of Terrorism published in June 2007 (IMF Country Report No. 07/190, http://www.imf.org/external/pubs/ft/scr/2007/cr07190.pdf). - An FSAP update mission took place in September 2008. - An FSSA update report was published in January 2009 (IMF Country Report No 09/30, http://www.imf.org/external/pubs/cat/longres.cfm?sk=22656.0). - The fiscal ROSC was published on November 16, 2004 (http://www.imf.org/external/pubs/cat/longres.cfm?sk=17839.0). - The data ROSC was published on February 1, 2005 (http://www.imf.org/external/pubs/cat/longres.cfm?sk=18013.0). ### Technical Assistance, 2007–13 (Department, Subject, Timing) - MCM: Monetary policy strategy and implementation — May–June 2013 - MCM: Risk Based Supervision — July 2012 - MCM: Bank Supervision — February–March 2012 - MCM: TA on Development Bank — October–November 2011 - MCM: Bank Supervision — October 2011 - MCM: Risk Based Supervision — April 2011 - MCM: Banking supervision: on-site inspections — September 2010 - MCM: Banking Supervision: early warning system, risk management — March–April 2010 - MCM: Strengthening central bank autonomy — March 2010 - MCM: NBRB refinancing of banks — November 2009 - MCM: Banking regulation: loan classification and provisioning — April 2009 - MCM: Monetary policy: forecasting and policy analysis — February–March 2009 - MCM: Exchange rate regime, foreign exchange operations — December 2008 - MCM: FSAP Update — September 2008 - MCM: Financial stability and external debt management — January 2008 - MCM: Banking supervision: financial stability issues, stress-testing — July 2007 - MCM: Building a system for forecasting and policy analysis — June 2008; October 2007; July 2007 - MCM: Strengthening forecasting and policy analysis — May 2007 - MCM: Banking supervision: on-site inspection — April 2007 - MCM: Banking supervision: stress-testing, financial stability — March 2007 - MCM: Insurance supervision — March 2007 - MCM: Monetary policies analysis and forecasting — February 2007 - MCM: Banking supervision: on-site inspection — January 2007 - MCM: Improving monetary policy — January 2007 - FAD: Social Safety Nets — November 2011 - FAD: Program budgeting and medium-term framework — March–April 2011 - FAD: Tax administration — September 2010 - FAD: Tax policy — April 2010 - FAD: Expenditure rationalization — March 2010 - FAD: Tax system reform — October 2009 - FAD: Introduction of a medium-term fiscal framework (MTF) — March–April 2009 - FAD: Program budgeting reform implementation — March 2008; November 2007; May 2007 - STA: National accounts statistics — September–October 2013 - STA: Government finance statistics — July–August 2013 - STA: National accounts statistics — April 2013 - STA: Multitopic Statistics Mission — October–November 2010 - STA: National accounts statistics — January 2008 - STA: Balance of payments and external sector statistics — January 2008 - STA: Government finance statistics — September–October 2007 ### Relations with the World Bank Group — Strategy and Cooperation - WBG Country Partnership Strategy (CPS) for FY 2014–17 discussed in June 2013; CPS supports Belarus to improve: - competitiveness of the economy by supporting structural reforms, including reducing the role of the state, transforming the state-owned enterprise (SOE) sector, promoting private and financial sector development and integration into the global economy; - quality and efficiency of public infrastructure services, use of agricultural and forestry resources and global benefits of public goods; - human development outcomes through better education, health and social services. - WBG program includes Analytical and Advisory Activities (AAA), investment lending by the World Bank, and investments in the private sector by the IFC. - WBG envisages new investment lending totaling up to US$ 280 Million during 2013-2015 to support investments in PFM systems, forest management, energy efficiency, district heating, water supply/sanitation and education. - IFC program priorities include: - trade development in critical sectors such as agriculture, focusing on small and medium-sized exporters and importers; - MSMEs access to finance; - investments into energy efficiency improvements; - advisory work on regulatory simplification, including in agriculture and forestry. - Agriculture and forestry remain priority sectors for IFC support. ### IMF–World Bank Collaboration: Roles and Thematic Leads - Joint roles: - Macroeconomic framework and debt sustainability analysis collaboration and consultation. - Public expenditure management: Bank to continue PER and synthesis report on fiscal reforms; Fund to support fiscal consolidation and provide technical assistance on expenditure rationalization. - Financial sector: Bank and Fund to jointly support authorities on vulnerabilities, reforms, monitoring (including Development Bank), financial consumer protection and financial literacy. - Areas led by the WBG: - Structural reforms and private business development via programmatic structural reform technical assistance through 2016; support for WTO accession; privatization TA; private sector development TA (SME promotion); IFC advisory programs. - Public Financial Management: PEFA update to underpin planned PFM modernization investment loan. - Energy sector: Current projects include Post Chernobyl Recovery Project (PCRP) (US$80 million) and Energy Efficiency Project (EEP) (US$215 million); a new operation targeted at increased use of wood biomass in district heating (US$90) under preparation. - Road Transport: Road Upgrading and Modernization Project (US$150 million) targeting Trans-European Transport Corridor IX. - Environment: GEF Grant Project (US$5.5 million) for POPs Stockpile Management; Water Supply and Sanitation Project (US$60 million); Solid Waste Management Project (US$42.5 million); Additional Financing Loan (US$90 million) to enhance Water Supply and Sanitation Project under preparation. - Areas led by the Fund: - Macroeconomic program dialogue, technical assistance on economic and financial statistics, tax policy, monetary operations, and fiscal transparency. - Leading dialogue on objectives for monetary and exchange rate policies, overall budget envelope, and tax policy. - Fund analysis used as input to Bank policy advice; Bank staff participation in IMF Article IV Consultations. ### Contact Points (as listed) - Sebastian Eckardt (Senior Economist, ECSPE, 202-458-7954) - Kiryl Haiduk (Country Economist, ECSPE, 375-17-2265284) ### Belarus: Bank and Fund Planned Activities in Macro-Critical Structural Reform Areas in 2012–13 - Bank Work Program (products and provisional timing / expected delivery date): - Regular Macro-Economic monitoring — Ongoing — Through 2013/2017 - Programmatic Structural Reform Dialogue — Ongoing TA through 2013/2016 - WTO Accession Technical Assistance — Ongoing TA through 2013/2016 - Financial Sector TA (Financial Literacy and Consumer Protection) — Ongoing TA through 2012/2013 - Privatization TA — Ongoing TA through 2013/2015 - Private Sector Development TA (SME Promotion) — Ongoing TA through 2013/2015 - IFC Investment Climate Advisory Services (Belarus Regulatory Simplification and Investment Generation Project) — Ongoing TA through 2012/2013 - IFC Standards Advisory Services (Belarus Food Safety Project) — Ongoing TA through 2012/2013 - Fund Work Program: - Peripatetic Advisor on Bank Supervision — Ongoing — Through April 2013 - Developing Capacity and Instruments of the NBRB — Planned — June 2013 - Monetary and Foreign Exchange Policy — Planned — June 2013 *IMF staff report content as provided in the source PDF.* ### 3. Joint Work ### 3. Joint Work ### Program / Joint Policy Dialogue - Program: Ongoing - Joint Policy Dialogue with Structural Reform Working Group: Through 2012/2014 ### Statistical issues — Assessment of Data Adequacy for Surveillance (As of October 1, 2013) - General: - "Data provision has some shortcomings, but is broadly adequate for surveillance." - "The most affected area is external debt data." - National Accounts: - The National Statistics Committee (NSC) compiles and disseminates quarterly and annual GDP estimates at current and constant prices following the 1993 System of National Accounts. - "The quality of the estimates is good, and the timeliness and periodicity exceed the Special Data Dissemination Standard (SDDS) requirements." - A monthly GDP is compiled 15 days after the end of the reference month. - NSC compiles annually a full set of accounts (up to the financial accounts), institutional sector accounts, and input-output tables. - Compilation of experimental estimates of regional GDP at current and constant price: monthly, quarterly and annual has started. - "The accuracy of the source data is good, and the statistical techniques used are sound." - "The national accounts estimates are internally consistent, and they are also consistent with other macroeconomic statistics." - "All other real sector data are disseminated in accordance with the SDDS requirements." - Price Statistics: - "The CPI covers 31 towns in the country and the PPI covers approximately 1,700 industrial organizations, and they are published monthly." - "The CPI and PPI are based on weights from 2011." - Government Finance Statistics: - "Government finance statistics are compiled in broad compliance with the recommendations of the Government Finance Statistics Manual 2001 (GFSM 2001)." - Areas needing improvement: classification of some expenses (e.g. subsidies to corporations, social benefits to households, and capital transfers to corporations); inconsistency between GFS and monetary data; valuation of assets and liabilities (at nominal or market value); and compilation for public corporations. - Monetary Statistics: - "Monetary and Financial Statistics are compiled by the National Bank of the Republic of Belarus (NBRB), broadly following the methodology of the IMF’s Monetary and Financial Statistics Manual (MFSM)." - "The NBRB has implemented most of STA recommendations regarding monetary statistics." - External Sector Statistics: - "The NBRB publishes quarterly balance of payments and international investment position statements in the BPM5 format (for 1996–2011) and in the BPM6 format since 2012 (revised data available from 2005)." - "Overall the timeliness and serviceability of external sector data is satisfactory, although there are gaps in external debt data, in particular gross external debt statistics." - "While the BMP6 requires debt statistics to be reported in net terms, compiling of gross external debt statistics remains important." ### Data Standards and Quality - "Belarus subscribed to the Special Data Dissemination System (SDDS) on December 22, 2004 and met all SDDS requirements at the time of subscription." - "A data ROSC report was published on February 1, 2005." ### Press Release — Fifth Post-Program Monitoring Discussions (Press Release No. 13/518, December 17, 2013) - Headline conclusions: - Growth in Belarus: "1.1 percent (year-on-year) in the first nine months of 2013." - Contributing factors: "high real wage increases and rapid directed lending growth contributing to widening external imbalances." - Inflation: "fell in the first half of the year, but it has rebounded from September and remains in double-digits." - Current account: "reaching a 9½ percent of GDP deficit in the first half of the year." - Reserves: "covered about 1.7 months of imports in October." - Banking sector: - Pressure from "shortages in rubel funding related to the public’s increasing preference for holding foreign currency." - "Foreign currency lending growth slowed substantially in 2013, but remains high at around 20 percent during January–September." - "Loan dollarization continued to rise, reaching 48 percent of total loans in September." - Policy actions: - "In October, the National Bank and the government adopted a new joint action plan that would start partial reforms in a number of key areas including price liberalization and privatization." - Outlook and risks: - "The outlook is for continued slow growth and a difficult balance of payments position in the short-term." - "Risks are heavily tilted to the downside." - "A further worsening of the current account or the financial account could increase pressures on reserves and the rubel." - "Banking risks also remain a concern, including on account of the still-rapid foreign exchange lending growth." ### Executive Board Assessment (summary of Directors' views) - Recommended policy priorities: - "Adopt a strong policy response to mitigate these risks in an orderly manner." - "Tightening of macroeconomic policies as well as deep structural reforms would be needed to restore internal and external balance, and lift medium-term growth prospects." - Specific recommendations: - "Wage increases are halted through 2014." - "Directed lending is sharply reduced, with a full phase out over the medium term." - "Remaining directed lending should be channeled through the Development Bank to foster the operation of state banks on commercial terms and promote better credit allocation." - Fiscal stance: "a balanced budget is an appropriate fiscal target for next year, although a surplus should be targeted instead if insufficient progress is made towards the elimination of directed lending." - External sector and monetary policy: - "Scaling back interventions in the foreign exchange market would help narrow external imbalances and safeguard official reserves." - "A tighter monetary stance would help contain inflationary pressures and prevent exchange rate overshooting." - "A shift to a policy framework centered on targeting base money could bolster policy credibility and help pave the way for the adoption of an inflation targeting regime over the medium term." - Financial sector vigilance: - "Continued close monitoring of developments" in foreign currency lending. - "Heightened vigilance over new deposit instruments that expose banks to exchange rate risks." - Structural reforms: - "Deeper structural reforms are key to sustained non-inflationary growth." - Encouragement of "timely implementation" of the authorities’ Joint Action Plan. - Need for "a much more ambitious and frontloaded reform agenda, including comprehensive price liberalization, a detailed strategy and significant initial steps for reducing the role of the state in the economy, and a strengthening of social safety nets." - "Support for a new Fund arrangement would depend on Belarus’ firm commitment to a comprehensive package of such reforms combined with strong macroeconomic policies." ### Belarus: Selected Economic Indicators (selected figures) - Real GDP: - 2009: 0.1 - 2010: 7.7 - 2011: 5.5 - 2012: 1.5 - 2013: 1.5 - Total domestic demand: - 2009: -1.7 - 2010: 11.5 - 2011: 3.4 - 2012: 3.7 - 2013: 5.8 - Consumption: - 2009: 0.0 - 2010: 7.9 - 2011: 1.0 - 2012: 8.2 - 2013: 7.0 - Investment: - 2009: -4.8 - 2010: 18.4 - 2011: 7.8 - 2012: -3.7 - 2013: 3.5 - Net exports (contribution to growth): - 2009: 1.4 - 2010: -3.7 - 2011: 3.4 - 2012: -1.8 - 2013: -5.0 - Consumer prices (end of period): - 2009: 10.1 - 2010: 9.9 - 2011: 108.7 - 2012: 21.8 - 2013: 14.5 - Consumer prices (average): - 2009: 13.0 - 2010: 7.7 - 2011: 53.2 - 2012: 59.2 - 2013: 19.1 - Reserve money: - 2009: -11.5 - 2010: 49.5 - 2011: 84.1 - 2012: 61.6 - 2013: 23.4 - Rubel broad money: - 2009: 0.9 - 2010: 27.4 - 2011: 64.1 - 2012: 57.2 - 2013: 27.5 - Current account (percent of GDP): - 2009: -12.6 - 2010: -15.0 - 2011: -8.5 - 2012: -2.7 - 2013: -9.4 - Trade balance: - 2009: -14.1 - 2010: -16.4 - 2011: -5.8 - 2012: 0.9 - 2013: -5.8 - Exports of goods (growth): - 2009: 43.4 - 2010: 46.0 - 2011: 68.5 - 2012: 72.0 - 2013: 53.1 - Imports of goods (growth): - 2009: -57.5 - 2010: -62.4 - 2011: -74.3 - 2012: -71.2 - 2013: -58.8 - Gross external debt (percent of GDP): - 2009: 45.6 - 2010: 52.1 - 2011: 57.7 - 2012: 54.5 - 2013: 51.2 - Public gross consolidated debt (percent of GDP): - 2009: 18.9 - 2010: 22.6 - 2011: 25.0 - 2012: 23.3 - 2013: 21.3 - Private (mostly state-owned-enterprises) external debt: - 2009: 26.7 - 2010: 29.5 - 2011: 32.7 - 2012: 31.2 - 2013: 29.8 - Gross domestic investment: - 2009: 37.3 - 2010: 41.2 - 2011: 37.6 - 2012: 34.5 - 2013: 38.0 - National saving: - 2009: 24.7 - 2010: 26.2 - 2011: 29.2 - 2012: 31.8 - 2013: 28.5 - General government balance: - 2009: -0.7 - 2010: -1.8 - 2011: 2.8 - 2012: 0.7 - 2013: -0.5 - Augmented general government balance: - 2009: -0.7 - 2010: -4.3 - 2011: -2.9 - 2012: 0.5 - 2013: -0.8 - Revenue (percent of GDP): - 2009: 45.8 - 2010: 41.6 - 2011: 38.8 - 2012: 40.8 - 2013: 38.7 - Expenditure (percent of GDP): - 2009: 46.5 - 2010: 45.9 - 2011: 41.6 - 2012: 40.2 - 2013: 39.5 - Of which, wages (percent of GDP): - 2009: 6.7 - 2010: 7.0 - 2011: 6.3 - 2012: 6.6 - 2013: 6.8 - Subsidies and transfers (percent of GDP): - 2009: 11.7 - 2010: 8.3 - 2011: 7.3 - 2012: 7.7 - 2013: 8.2 - Investment (percent of GDP): - 2009: 8.1 - 2010: 8.3 - 2011: 5.1 - 2012: 6.5 - 2013: 5.0 - Gross public debt (percent of GDP): - 2009: 34.7 - 2010: 39.5 - 2011: 45.9 - 2012: 38.7 - 2013: 35.8 - Memorandum items: - Nominal GDP (billions of U.S. dollars): 2009: 49.2; 2010: 55.2; 2011: 59.7; 2012: 63.3; 2013: ... - Nominal GDP (trillions of rubels): 2009: 137.4; 2010: 164.5; 2011: 297.2; 2012: 527.4; 2013: 670.1 - Real effective exchange rate: 2009: -4.5; 2010: -5.0; 2011: -11.7; 2012: -8.2; 2013: ... - Exchange rate (rubel /U.S. dollar, average): 2009: 2,793; 2010: 2,979; 2011: 4,975; 2012: 8,337; 2013: ... - Official reserves (billions of U.S. dollars): 2009: 5.7; 2010: 5.0; 2011: 7.9; 2012: 8.1; 2013: 5.7 - Months of imports of goods and services: - 2009: 1.8 - 2010: 1.3 - 2011: 1.9 - 2012: 2.1 - 2013: 1.4 - Percent of short-term debt: - 2009: 63.2 - 2010: 42.1 - 2011: 56.9 - 2012: 63.8 - 2013: 42.7 ### Statement by the Belarusian authorities (Mr. Prader and Mr. Misyukovets) — December 9, 2013 - Authorities' view: - "The Belarusian authorities appreciate the candid dialogue with the Fund staff during the fifth Post-Program Monitoring discussions." - "They agree with the staff’s assessment of the current macroeconomic situation and with their recommendations on economic and financial policies." - "The Fund’s continuous technical assistance in macroeconomic management is also greatly appreciated." - Macroeconomic developments and policies (authorities' summary): - "In September 2013, GDP ceased to decline and growth stabilized at a rate of 1.1 percent." - Exports: "During the first nine months of 2013, Belarus’ exports declined by $ 7.2 billion, or by 17.7 percent, against January-September 2012 and resulted in a trade deficit of $ 373 million despite record high net exports of services ($ 2 billion)." - Preliminary 2013 outlook: "The deficit of trade in goods and services may reach $ 2 billion and the current account deficit may widen to 9.9 percent of GDP in 2013." - External financing: "The country’s gross external financing needs are exacerbated by significant external debt repayments falling due in 2013 and 2014." - Inflation developments: - Inflation reached "the annual target of 12 percent in October." - Utility tariffs grew by "31.4 percent" and public transportation tariffs rose by "54.5 percent," which added "1.75 and 0.4 percentage points to the CPI, respectively." - "Further increases of the electricity, heating and water supply tariffs that were made in November and are to be made by the end of 2013 may result in annual inflation of up to 15 percent." - 2012 inflation was "21.8 percent." - Forecast for 2014: "inflation is forecast at 11 percent." - Monetary policy and interest rates: - "The refinancing rate of 23.5 percent per annum and the liquidity support rate of currently about 40 percent per annum have been kept firmly positive in real terms." - These rates have "proved to be instrumental in containing liquidity." - Credit growth targets: - Targets envisage "a cap on the increase in credit to the economy approximately equal to a 16-19 percent growth in nominal terms by the end of 2014." - "These targets, however, may be scaled down further to achieve the intended stabilization objectives in case domestic demand does not slow down sufficiently or external imbalances persist." - Fiscal policy: - "Fiscal policy continues to be disciplined and resulted in a general government surplus of 1.4 percent of GDP in January-September 2013." - "Pressures on the revenue side have emerged following the economic slowdown and negative developments in external markets." - "In line with the target to balance the budget, the authorities started to proactively mitigate these effects as early as in the second quarter of 2013 and implemented a fiscal adjustment..." *Sources: Belarusian authorities; and IMF staff estimates.* ### 2.5 percent of GDP. Nevertheless, the negative developments, especially the unanticipated ### _cr1418 - 2.5 percent of GDP. Nevertheless, the negative developments, especially the unanticipated ### Fiscal outlook and short-term projections - Revenues experienced a shortfall due to unanticipated disruptions in the international potash market in the second half of 2013. - A small fiscal deficit of up to 0.5 percent of GDP is projected for 2013. - In view of more optimistic growth projections and market expectations, the 2014 budget is expected to be balanced. - Authorities remain committed to fiscal prudence and further fiscal consolidation, including engagement with the World Bank on improving transparency and efficiency of public financial management. - Fund staff advice on public financial management is highly valued and authorities look forward to continued support. ### Public debt, external obligations, and financing risks - Public debt is described as remaining at a sustainable level but with challenges ahead. - During January-September, 2013, external debt grew moderately by 2.6 percent. - The government met all its external obligations in the amount of $ 1.9 billion, including $ 1.2 billion to the Fund, on time. - A set of instruments to refinance debt domestically and externally is available, but financing terms in international markets are and are likely to remain difficult. - Authorities intend to use findings from the public debt sustainability analysis and related stress testing in their debt management. - External multilateral and bilateral financial support would be exceptionally helpful going forward for balanced fiscal and debt management. ### Public banks, directed lending, and wage policy - An overhaul of government programs and the transfer of directed lending to the Development Bank is planned. - This will be accompanied by steps to improve the Development Bank’s capacity, corporate governance, and presence in the regions. - Measures will ensure adequate prudential supervision and financial risk management of the Development Bank. - Wages will be restrained, while allowing for the need to tackle negative migration trends. ### Structural reform progress and business environment - Government has pursued a structural adjustment agenda with a focus on private sector-led development. - Price controls introduced in 2011 were lifted on a wide range of consumer goods. - Belarus improved its position in the World Bank’s Doing Business ranking, notably on starting a business, registering property, and resolving insolvency indicators. - A package of legislation to promote competitiveness and crowd in foreign investors is under preparation, including laws on investment funds, insurance, securitization, public-private partnership, indicative planning, and anti-monopoly regulation. ### Privatization program, FDI targets, and SOE reform - Substantial progress in transparent privatization procedures under the pilot privatization program implemented in cooperation with the World Bank: - Negotiations with winning bidders on the first two companies are at an advanced stage and signing of contracts is expected shortly. - Sale process for the second pool of companies has been launched. - Financial advisor for the third pool of four enterprises has been selected to help start tenders in the first quarter of 2014. - Sale of state-owned assets in 85 enterprises at auctions and/or by competitive bidding, including in large companies, was announced in October. - Government target to generate $ 4.5 billion in foreign direct investments in 2014, including $ 2 billion from privatization. - Privatization aims to raise productivity through new capital investments, adoption of more advanced technologies, and transfer of managerial skills. - Use of IPO for “well-performing” enterprises is identified as an important avenue for increasing private investment and improving SOE corporate governance. ### Joint Action Plan (JAP) and international cooperation - Crisis response measures were operationalized with adoption on October 10, 2013 of the Joint Action Plan of the Government and the National Bank on structural reforms and competitiveness (JAP). - The JAP contains actions across fiscal, monetary and exchange rate policies, state asset management, utility tariff reform, competition, and anti-trust framework. - Over the medium term, JAP aims to address structural deficiencies holding back growth. Its open format allows for modifications and expansion; further detailed and concrete plans will be elaborated to underpin proposed actions. - Authorities have communicated the JAP to the general public and stand ready to cooperate with international partners on implementation. - Ongoing and planned cooperation with the World Bank includes work on social impact of utility tariff reforms, labor market reforms and social safety nets, trade competitiveness in services and goods in the context of WTO accession, efficiency analysis of state supported programs, and SOE governance assessment. - Authorities agree the JAP needs to be complemented with additional measures to reverse negative trends and promote economic sustainability, welcome Fund staff recommendations for implementation consistency, and view the JAP as a potential platform for a new Fund-supported program with continued engagement with Fund staff. *Source: Excerpt from the provided IMF content unit.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1418.pdf_