Public Information Notice (PIN) No. 12/50
May 17, 2012
On May 4, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation and second Post-Program Monitoring discussions with Belarus.1
Background
The last year was marked by a severe balance of payments crisis. Unsustainable policies in late 2010 and the first quarter of 2011 pushed the economy into an inflation-depreciation spiral, with the 12-month inflation rate accelerating to 109 percent. Despite the slowdown of economic activity in the second half of 2011, growth remained robust at 5.3 percent.
Since mid-2011 the authorities have been implementing stabilization measures. The National Bank of the Republic of Belarus has discontinued the practice of providing liquidity at non-market terms in June 2011 and gradually increased policy interest rates in the second half of the year. The authorities unified the exchange rate and introduced a flexible exchange rate regime in October 2011. The general government fiscal balance showed a surplus of 3 percent of GDP for the year. These policies have restored foreign exchange markets, reduced inflation (which has fallen to below 2 percent per month in the first quarter of 2012) and improved the current account deficit. Recently signed oil and gas agreements with Russia have led to a significant improvement in terms of trade. Official reserves have risen to a level covering 2 months of imports of goods and services following substantial privatization proceeds, two tranches of a EurAsEC Anti-Crisis Fund loan and a loan from Sberbank.
The financial system has weathered the 2011 crisis and banks’ capital has been replenished with general budget resources. In 2011, bank recapitalization expenditure amounted to 5 percent of GDP. System-wide non-performing loans increased modestly to slightly over 4 percent at the end of 2011, but are expected to increase further as the economy slows down. Continued deterioration in asset quality would put pressure on banks’ capital and could call for new recapitalizations.
The authorities have announced their intention to reduce inflation and lower the current account deficit and to raise the level of reserves and adjusted policy plans by curtailing plans for lending under government programs and adopting a balanced budget for 2012. However, they also announced a 5–5.5 percent GDP growth target and stated their intent to increase dollar wages significantly.
Structural reforms have been slow, with occasional reversals. Banking sector reform has been progressing slowly, and little has been done to harden state-owned enterprises’ (SOEs) budget constraints. Price liberalization was partially reversed in 2011.
Executive Board Assessment
Executive Directors welcomed the Belarusian economy’s emergence from the 2011 crisis owing to the authorities’ commendable adjustment policies in the second half of the year, including exchange rate unification, introduction of a flexible exchange rate, monetary policy tightening, and expenditure and wage restraint. These policies have restored foreign exchange markets, reduced inflation and the current account deficit, and helped increase reserves. Given substantial remaining vulnerabilities and risks, Directors strongly encouraged the authorities to remain firmly focused on consolidating domestic and external stability and to pursue structural reforms.
Directors stressed the importance of ensuring consistency between the authorities’ policy goals. They noted that pursuing high growth and wage targets could re-ignite the inflation-depreciation spiral and imperil medium-term fiscal and debt sustainability. They called for continued fiscal restraint and for a disciplined wage policy in the public sector, including SOEs. Keeping a tight monetary policy stance would also be important to keep inflation in check. It should be supported by continued exchange rate flexibility and a strong reserve buffer to insulate the economy from external shocks. In this connection, progress toward implementing the prerequisites for inflation targeting would boost the credibility of monetary and exchange rate policies.
Directors emphasized the need to enhance fiscal discipline, noting that limiting quasi-fiscal operations and rationalizing government spending would improve efficiency and reduce the debt level over the medium term. They encouraged the authorities to accelerate plans to reduce general subsidies and improve targeted social assistance and implement civil service and pension reforms.
Directors underscored the need for strong and carefully sequenced structural reforms to improve productivity and growth prospects and reduce vulnerabilities over the medium term. They highlighted the importance of reducing the government’s direct control of the economy, noting that price liberalization, enterprise reform, and privatization would improve resource allocation and strengthen market incentives. In the financial sector, a greater role for private banks would increase efficiency. Relieving state-owned banks of the obligation to undertake directed lending once the Development Bank becomes fully operational, while ensuring that the bank is run on prudent and transparent principles, would be important. Directors also called for further improvements to the business and investment climate.
Directors noted the authorities’ interest in a Fund-supported arrangement. They stressed that a firm commitment by policymakers at the highest level to a strong and consistent stabilization and reform strategy would be essential.
| Belarus: Selected Economic Indicators, 2008–12 |
| |
| |
2008 |
2009 |
2010 |
2011 |
2012 |
|
|
|
|
|
Prel. |
Proj. |
| |
| |
|
|
|
|
|
|
National accounts |
|
|
|
|
|
|
Real GDP |
10.2 |
0.2 |
7.7 |
5.3 |
3.0 |
|
Total domestic demand |
17.8 |
-1.1 |
11.2 |
2.9 |
3.0 |
|
Consumption |
12.5 |
0.0 |
7.4 |
2.9 |
3.9 |
|
Nongovernment |
16.4 |
0.0 |
9.0 |
3.5 |
3.8 |
|
Government |
0.3 |
-0.1 |
2.3 |
1.0 |
4.0 |
|
Investment |
28.2 |
-2.9 |
18.4 |
3.0 |
1.6 |
|
Of which: fixed |
23.8 |
5.0 |
17.5 |
11.1 |
1.5 |
|
Net exports 1/ |
-9.2 |
1.3 |
-3.7 |
3.8 |
-0.3 |
| |
|
|
|
|
|
|
Consumer prices |
|
|
|
|
|
|
End of period |
13.3 |
10.1 |
9.9 |
108.7 |
38.4 |
|
Average |
14.8 |
13.0 |
7.7 |
53.2 |
66.0 |
| |
|
|
|
|
|
|
Monetary accounts |
|
|
|
|
|
|
Rubel broad money |
22.5 |
0.9 |
27.4 |
64.1 |
42.8 |
|
Growth of credit to the economy at constant exchange rates |
39.0 |
17.6 |
23.7 |
29.2 |
42.7 |
| |
|
|
External debt and balance of payments |
|
|
|
|
|
|
Current account |
-8.2 |
-12.6 |
-15.0 |
-10.5 |
-6.2 |
|
Trade balance |
-10.3 |
-14.1 |
-16.4 |
-6.7 |
-1.9 |
|
Exports of goods |
54.0 |
43.4 |
46.0 |
75.1 |
79.6 |
|
Imports of goods |
-64.3 |
-57.5 |
-62.4 |
-81.8 |
-81.5 |
|
Gross external debt |
25.0 |
45.6 |
51.1 |
61.4 |
60.4 |
|
Public 2/ |
6.8 |
18.9 |
21.6 |
27.8 |
25.1 |
|
Private (mostly state-owned-enterprises) |
18.1 |
26.7 |
29.5 |
33.6 |
35.2 |
| |
|
|
|
|
|
|
Savings and investment |
|
|
|
|
|
|
Gross domestic investment |
37.6 |
37.3 |
41.2 |
36.3 |
34.9 |
|
National saving |
29.4 |
24.7 |
26.2 |
25.8 |
28.7 |
| |
|
|
|
|
|
|
Public sector finance |
|
|
|
|
|
|
General government balance |
1.3 |
-0.7 |
-1.8 |
3.1 |
0.0 |
|
Augmented general government balance |
-3.5 |
-0.7 |
-4.3 |
-3.0 |
-2.3 |
|
Revenue |
50.6 |
45.7 |
41.6 |
42.0 |
39.2 |
|
Expenditure 3/ |
54.1 |
46.4 |
45.9 |
45.0 |
41.5 |
|
Of which: |
|
|
|
|
|
|
Wages |
6.6 |
6.7 |
7.0 |
6.8 |
6.7 |
|
Subsidies and transfers |
11.5 |
11.7 |
8.3 |
7.8 |
7.5 |
|
Investment |
10.0 |
8.1 |
8.3 |
5.5 |
5.7 |
|
Gross public debt |
21.7 |
34.9 |
41.0 |
50.6 |
37.7 |
| |
|
|
Memorandum items: |
|
|
|
|
|
|
Nominal GDP (billions of U.S. dollars) |
60.8 |
49.2 |
55.2 |
55.1 |
… |
|
Nominal GDP (trillions of rubels) |
129.8 |
137.4 |
164.5 |
274.3 |
495.2 |
|
Terms of trade |
8.8 |
-10.3 |
0.5 |
5.9 |
7.1 |
|
Real effective exchange rate |
1.6 |
-4.5 |
-5.0 |
-17.8 |
1.3 |
|
Official reserves (billions of U.S. dollars) |
3.1 |
5.7 |
5.0 |
7.9 |
5.5 |
|
Months of imports of goods and services |
1.2 |
1.8 |
1.2 |
1.9 |
1.2 |
|
Percent of short-term debt |
40.4 |
63.2 |
42.0 |
56.9 |
38.9 |
| |
|
Sources: Belarusian authorities; and IMF staff estimates.
1/ Contribution to growth.
2/ Gross consolidated debt of the public sector (central bank and general government debt including publicly guaranteed debt).
3/ Refers to the augmented expenditure of the general government. |
| Belarus: Selected Economic Indicators, 2008–12 |
| |
| |
2008 |
2009 |
2010 |
2011 |
2012 |
|
|
|
|
|
Prel. |
Proj. |
| |
| |
|
|
|
|
|
|
National accounts |
|
|
|
|
|
|
Real GDP |
10.2 |
0.2 |
7.7 |
5.3 |
3.0 |
|
Total domestic demand |
17.8 |
-1.1 |
11.2 |
2.9 |
3.0 |
|
Consumption |
12.5 |
0.0 |
7.4 |
2.9 |
3.9 |
|
Nongovernment |
16.4 |
0.0 |
9.0 |
3.5 |
3.8 |
|
Government |
0.3 |
-0.1 |
2.3 |
1.0 |
4.0 |
|
Investment |
28.2 |
-2.9 |
18.4 |
3.0 |
1.6 |
|
Of which: fixed |
23.8 |
5.0 |
17.5 |
11.1 |
1.5 |
|
Net exports 1/ |
-9.2 |
1.3 |
-3.7 |
3.8 |
-0.3 |
| |
|
|
|
|
|
|
Consumer prices |
|
|
|
|
|
|
End of period |
13.3 |
10.1 |
9.9 |
108.7 |
38.4 |
|
Average |
14.8 |
13.0 |
7.7 |
53.2 |
66.0 |
| |
|
|
|
|
|
|
Monetary accounts |
|
|
|
|
|
|
Rubel broad money |
22.5 |
0.9 |
27.4 |
64.1 |
42.8 |
|
Growth of credit to the economy at constant exchange rates |
39.0 |
17.6 |
23.7 |
29.2 |
42.7 |
| |
|
|
External debt and balance of payments |
|
|
|
|
|
|
Current account |
-8.2 |
-12.6 |
-15.0 |
-10.5 |
-6.2 |
|
Trade balance |
-10.3 |
-14.1 |
-16.4 |
-6.7 |
-1.9 |
|
Exports of goods |
54.0 |
43.4 |
46.0 |
75.1 |
79.6 |
|
Imports of goods |
-64.3 |
-57.5 |
-62.4 |
-81.8 |
-81.5 |
|
Gross external debt |
25.0 |
45.6 |
51.1 |
61.4 |
60.4 |
|
Public 2/ |
6.8 |
18.9 |
21.6 |
27.8 |
25.1 |
|
Private (mostly state-owned-enterprises) |
18.1 |
26.7 |
29.5 |
33.6 |
35.2 |
| |
|
|
|
|
|
|
Savings and investment |
|
|
|
|
|
|
Gross domestic investment |
37.6 |
37.3 |
41.2 |
36.3 |
34.9 |
|
National saving |
29.4 |
24.7 |
26.2 |
25.8 |
28.7 |
| |
|
|
|
|
|
|
Public sector finance |
|
|
|
|
|
|
General government balance |
1.3 |
-0.7 |
-1.8 |
3.1 |
0.0 |
|
Augmented general government balance |
-3.5 |
-0.7 |
-4.3 |
-3.0 |
-2.3 |
|
Revenue |
50.6 |
45.7 |
41.6 |
42.0 |
39.2 |
|
Expenditure 3/ |
54.1 |
46.4 |
45.9 |
45.0 |
41.5 |
|
Of which: |
|
|
|
|
|
|
Wages |
6.6 |
6.7 |
7.0 |
6.8 |
6.7 |
|
Subsidies and transfers |
11.5 |
11.7 |
8.3 |
7.8 |
7.5 |
|
Investment |
10.0 |
8.1 |
8.3 |
5.5 |
5.7 |
|
Gross public debt |
21.7 |
34.9 |
41.0 |
50.6 |
37.7 |
| |
|
|
Memorandum items: |
|
|
|
|
|
|
Nominal GDP (billions of U.S. dollars) |
60.8 |
49.2 |
55.2 |
55.1 |
… |
|
Nominal GDP (trillions of rubels) |
129.8 |
137.4 |
164.5 |
274.3 |
495.2 |
|
Terms of trade |
8.8 |
-10.3 |
0.5 |
5.9 |
7.1 |
|
Real effective exchange rate |
1.6 |
-4.5 |
-5.0 |
-17.8 |
1.3 |
|
Official reserves (billions of U.S. dollars) |
3.1 |
5.7 |
5.0 |
7.9 |
5.5 |
|
Months of imports of goods and services |
1.2 |
1.8 |
1.2 |
1.9 |
1.2 |
|
Percent of short-term debt |
40.4 |
63.2 |
42.0 |
56.9 |
38.9 |
| |
|
Sources: Belarusian authorities; and IMF staff estimates.
1/ Contribution to growth.
2/ Gross consolidated debt of the public sector (central bank and general government debt including publicly guaranteed debt).
3/ Refers to the augmented expenditure of the general government. |
1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.
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