Press Release: IMF Executive Board Approves US$2.46 Billion Stand-By Arrangement for Belarus

January 12, 2009

Press Release No. 09/05

The Executive Board of the International Monetary Fund (IMF) today approved a 15-month SDR 1.62 billion (about US$2.46 billion) Stand-By Arrangement for Belarus in support of the country's efforts to adjust to external shocks. The approval makes an amount equivalent to SDR 517.8 million (about US$787.9 million) available immediately. The remainder will be phased thereafter, subject to quarterly reviews. The Stand-By Arrangement entails exceptional access to IMF resources, amounting to 418.8 percent of Belarus's quota.

The main objectives of the IMF-supported program are to facilitate an orderly adjustment to external shocks and to address pressing vulnerabilities. To this end, the program contains strong macroeconomic adjustment measures and addresses a number of structural issues that are critical to the adjustment and mitigation of vulnerabilities.

Following the Executive Board discussion on Belarus, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chairman, said:

"Belarus is experiencing serious economic problems. External vulnerabilities have been exposed by adverse terms of trade movements, falling demand from trading partners, and difficulties in securing external finance, leading to a decline in international reserves. In the face of these shocks and the adjustment needed to contain them, the economy is likely to slow in 2009.

"The authorities have a clear strategy to address the challenges they face. They have already adjusted the exchange rate and put in place tight fiscal and wage policies. The measures already taken and announced are strong and, with resolute implementation, will be sufficient to restore stability. Together with planned structural reforms in key areas, these measures should help return the economy to a higher growth path by 2010-11.

"The adjustment of the exchange rate parity will help restore competitiveness and address external imbalances. The adoption of the new currency basket and wider band will leave the economy better able to adapt to external shocks, thus making it less likely that further exchange rate adjustment will be needed. The increase in interest rates that preceded the shift in the exchange rate regime, and their subsequent further upward adjustment, will help support the new exchange rate regime.

"Fiscal tightening will help to bring demand into line with external financing constraints. Key measures include the planned reduction in directed lending, observance of the target of a balanced central government budget balance, and maintenance of a prudent wage policy in the broader public sector. The authorities also plan to review the social safety net, in cooperation with the World Bank, to ensure that the most vulnerable groups are protected against the economic downturn and the effects of utility tariff increases.

"Key structural reforms, including price and wage liberalization, should follow the realignment of the currency. Broader measures to support private sector development-including reductions in the size of government, deregulation, and privatization-are also needed to underpin better medium-term growth, and should be undertaken as fast as market conditions allow.

"Structural reform in the financial sector is an important priority in the program. The authorities have already enacted a blanket deposit guarantee, but the framework for financial sector liquidity and solvency support still needs to be refined. It will also be crucial to purge the banking system of directed lending. Doing so will improve incentives for banks and their borrowers to manage risks, and strengthen banks' capital positions.

"The authorities have developed a strong macroeconomic program to address the challenges Belarus is facing. Their actions merit the substantial financial support that the Fund will provide. The strength of the macroeconomic program gives confidence that Belarus will make a speedy return to stability. If the authorities follow through on their plans for reforms in key structural areas, prospects are also good for a resumption of rapid growth," Mr. Kato said.

Recent Economic Developments

Belarus's economic growth has been impressive in the last few years. It has averaged close to 9 percent since 2002, with spare capacity and high investment underpinning production growth, as well as a combination of sharp export price gains, strong growth in trading partners, and large energy subsidies from Russia supporting demand. However, recently the economy has been overheating. Since bottoming in 2006 at 7 percent, inflation has been rising in line with developments in other countries in the region and currently stands at 16 percent. The rise in inflation is partly the result of global food and energy shocks, but indicators of domestic demand, high credit growth, and output growth above trend point to an overheated economy.

During the boom, external vulnerabilities were not addressed: international reserves remained low, some Russian energy prices were unwound, and exports to Western markets remained concentrated on oil products, while higher value-added exports were mostly to the Commonwealth of Independent States (CIS). And in the financial sector, credit risks from foreign exchange borrowing and funding exposure to the global banking system have grown. Recent global developments have exposed these vulnerabilities, and as result, the currency peg to the U.S. dollar came under pressure toward the end of 2008.

Program Summary

Belarus's economic program is designed to facilitate adjustment to external shocks and reduce the vulnerabilities, and also includes a number of structural reforms on issues that are critical to the mitigation of vulnerabilities. A sharp economic slowdown is forecast for 2009, with GDP projected to grow at 1-2 percent, after reaching 10.5 percent in 2008. Inflation is projected to slow to 11.5 percent in 2009.

Key features of the program are:

The implementation of a new exchange rate regime. The dollar peg has served the economy well, but the recent volatility of dollar-euro and dollar-ruble rates created significant problems: hindering inflation control on the dollar downside early in 2008, and creating competitiveness issues on the recent upside. The program includes a devaluation to a new dollar parity, with a simultaneous switch to a currency basket that better reflects the structure of Belarus's trade and financial flows, both measures implemented on January 1, 2009.

A tight fiscal stance to contain domestic demand growth. Fiscal tightening measures are aimed directly at slowing investment and consumption. Wage growth will slow in the budget and state enterprise sectors in 2009, and public investment will be restrained. Selected subsidies will be curtailed, but the social safety net will be strengthened to protect the most vulnerable people.

On structural policies, the program places economic liberalization as a priority, particularly price liberalization. The program also envisages efforts to enhance the role of the private sector by reducing the distortion of taxes and the regulatory burden on private companies, and continuing privatization efforts.

Belarus joined the IMF on July 10, 1992; its quota is SDR 386.4 million (about US$588.0 million), Its latest arrangement with the IMF was a Stand-By Arrangement that expired on September 11, 1996.

Belarus: Selected Economic Indicators, 2005-10 1/

  2005 2006 2007 2008 2009 2010

  (Annual percentage change, unless otherwise specified)

National accounts and employment


Real GDP

9.4 10.0 8.2 10.5 1.4 2.3

Total domestic demand

11.0 13.9 12.8 14.3 -2.2 1.3


10.1 9.0 9.7 10.7 -0.7 1.4


15.0 13.0 13.3 14.0 -1.0 1.5


0.4 -0.2 0.5 1.2 0.0 1.0


13.3 26.2 19.5 21.4 -4.9 1.0

Of which: fixed

19.5 26.5 19.7 20.8 -5.0 1.0

Net exports 2/

0.1 -7.9 -0.8 -6.9 3.9 0.9

Consumer prices


End of period

7.9 6.6 12.1 13.7 11.5 8.0


10.3 7.0 8.4 14.9 15.7 6.1
  (In percent of GDP)

External Debt and Balance of Payments


Current account

1.4 -3.9 -6.8 -7.6 -5.4 -3.6

Trade balance

-1.7 -6.1 -9.1 -9.6 -8.6 -7.4

Exports of goods

53.3 53.7 54.3 57.2 52.5 54.1

Imports of goods

-55.0 -59.8 -63.4 -66.8 -61.2 -61.5

Gross external debt

17.0 18.5 28.0 25.3 32.4 33.9

Public 3/

2.6 2.3 6.6 5.9 11.8 13.1

Private (banks and state-owned enterprises)

14.4 16.3 21.5 19.4 20.6 20.8

Savings and investment


Gross domestic investment

28.5 32.2 33.2 36.2 32.9 32.8


9.4 9.6 8.6 11.2 8.0 9.5


19.1 22.6 24.6 25.1 24.9 23.3

National saving

29.9 28.3 26.4 28.7 27.4 29.2


-0.7 1.4 0.4 -0.5 0.3 -0.7


30.6 26.8 25.9 29.1 27.2 29.9

Public sector finance


Central government balance

-1.7 0.4 -0.6 -0.8 0.0 -1.0

General government balance

-0.7 1.4 0.4 -0.5 0.3 -0.7


47.4 49.1 50.0 52.2 48.9 48.5


48.0 47.6 49.6 52.7 48.6 49.2

Of which



8.1 8.2 8.0 6.9 6.4 6.4

Subsidies and transfers

9.0 9.0 10.6 10.6 9.6 8.8


9.4 9.6 8.6 11.2 8.0 9.5
  (Annual percentage change unless indicated otherwise)

Terms of Trade

12.3 3.9 -2.5 8.7 -3.5 1.6

Real Effective Exchange Rate

-0.1 -2.0 -4.4 -1.1 -4.8 -3.5

Official reserves (millions of U.S. dollars)

1,297 1,383 4,182 2,865 5,204 8,085

Official reserves (months of imports of goods and services)

0.9 0.7 1.6 0.8 1.7 2.3

Official reserves (percent of short-term debt)

39.3 31.6 56.8 33.5 62.2 91.5

Sources: Belarusian authorities; and IMF staff estimates.

1/ Assumes exchange rate re-peg to a basket of currencies within a horizontal band, the upfront adoption of policies to reduce domestic demand.

2/ Contribution to growth.

3/ Gross consolidated debt of the public sector (general government, central bank, and guarantees extended to non-financial public enterprises).


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