September 21, 2016
PRESS OFFICER: Olga Stankova
Phone: +1 202 623-7100Email: MEDIA@IMF.org
On September 2, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the 2016 Article IV consultation1 with the Republic of Belarus.
Economic conditions in Belarus were volatile during much of 2015 and early 2016. The economy contracted by 3.9 percent in 2015, with a similar performance in the first half of 2016, hurt by domestic structural weaknesses and rigidities as well as external shocks. The exchange rate depreciated sharply during 2015 and part of 2016. Real wages are down substantially relative to 2014, and corporate losses are up. Unemployment has risen somewhat, though remains at relatively low levels.
Tighter fiscal and monetary policies during much of 2015–16 have helped support macroeconomic stabilization. The exchange rate has now stabilized and international bond spreads have narrowed. Since the shift to a more flexible exchange rate regime in early 2015, reserves have stabilized and, in recent months, begun to rise. The current account deficit is up slightly this year, but down sharply from the level of several years ago. Headline inflation has slowed in recent months, despite a sizeable hike in regulated utility tariffs in early 2016.
Vulnerabilities remain elevated. Credit to the private sector has slowed and banks’ asset quality and profitability have weakened. This, together with a slow resolution of troubled loans, has resulted in rising non-performing loans. Systemic liquidity risks are elevated as banks are highly dollarized and carry an asset-liability mismatch in some key foreign currencies. Public debt has risen, in spite of headline surpluses, in part due to rising realized losses in the state-owned enterprise sector. External debt has also risen, and reserves remain low by international standards.
The economy is expected to contract further this year and next, reflecting still-weak balance sheets and structural impediments. A subdued recovery is expected as of 2018, while over the medium-term the potential growth would only increase to around 1¾ percent, limited by negative demographics and, in the absence of deeper structural reforms, low productivity growth. Inflation is expected to gradually fall to the high single digits over the next few years.
Key domestic risks to the outlook include the pace of implementation of the policy reform agenda and uncertainties about the size of quasi-fiscal liabilities. On the external side, key risks include persistently lower international energy prices or disruptions in energy price arrangements with Russia. Corporate and bank balance sheets and household confidence remain sensitive to any significant exchange rate movements, owing to high dollarization, currency mismatches, limited access to foreign exchange liquidity, and significant annual gross external financing requirements.
Executive Board Assessment2
Executive Directors welcomed the measures taken by the authorities since early 2015 to stabilize the economy and begin implementing institutional and structural reforms, in a context of difficult economic conditions. Directors underscored, however, that sustained and far‑reaching reforms are needed to reduce macrofinancial vulnerabilities, rebuild buffers, and raise economic growth and jobs prospects.
Directors highlighted the importance of deeper reforms to unlock growth potential. They urged implementation of a comprehensive reform strategy for state‑owned enterprises to improve productivity and efficiency and reduce fiscal risks. This should include stronger corporate governance and oversight and clearer mechanisms for addressing problem entities. They also recommended identifying clear, evenly paced measures to achieve full cost recovery in the utility sector by end‑2018. Directors stressed that improving the business environment, including through pursuit of WTO membership and steps to enhance product market competition, will be crucial.
Directors encouraged the authorities to continue their efforts to strengthen the fiscal framework. They noted that some easing is possible in the near term, given the deep recession and negative output gap. This should be followed by a gradual medium‑term fiscal consolidation to reduce public debt while preserving space for enhanced social safety nets and capital expenditure. They stressed the need to strengthen the debt anchor by encompassing government guarantees and local government debt. They also recommended reflecting in the budget all quasi‑fiscal support to enhance transparency. Further pension reforms will also be important.
Directors urged a cautious monetary policy stance to preserve macroeconomic and financial stability, including a tightening of monetary aggregates if needed. They welcomed the authorities’ plans to gradually transition from quantitative targeting to inflation targeting in the medium term. They underscored the importance of continuing to phase out directed lending and price controls and ensuring that the prudential limits on interest rates are temporary. They supported efforts to strengthen the central bank’s operational capacity and independence, including through clarification of the primacy of price stability. Directors also welcomed the elimination of multiple currency practices and the shift to a more flexible exchange rate. They stressed the importance of maintaining exchange rate flexibility and rebuilding external buffers as conditions allow.
Directors encouraged the authorities to implement the recommendations of the Financial System Stability Assessment, including transitioning to independent and risk‑based oversight of the financial sector, implementing a comprehensive resolution strategy for nonperforming loans combined with corporate restructuring, strengthening macro‑prudential policies to mitigate foreign exchange liquidity risks from dollarization, and designing a well‑functioning financial safety net. They urged follow up on any shortcomings identified by the asset quality reviews of major banks. Directors emphasized that the Development Bank should maintain a limited and well‑targeted role.
Directors noted the authorities’ interest in a Fund‑supported program and underscored the importance of strong commitment at the highest level to consistent macroeconomic policies and deep, market‑oriented reforms.
Belarus: Selected Economic Indicators (Baseline), 2014–21
|
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
|
|
Proj. |
||||||||
|
(Percentage change) |
||||||||
|
National accounts |
||||||||
|
Real GDP |
1.7 |
-3.9 |
-3.0 |
-0.5 |
0.5 |
1.0 |
1.3 |
1.8 |
|
Total domestic demand |
0.3 |
-6.3 |
-9.7 |
-3.6 |
-0.8 |
0.1 |
0.3 |
1.3 |
|
Consumption |
3.2 |
-2.0 |
-3.9 |
0.4 |
1.3 |
1.7 |
1.3 |
2.0 |
|
Nongovernment |
4.3 |
-2.4 |
-2.5 |
0.4 |
1.5 |
1.7 |
1.4 |
2.4 |
|
Government |
-2.0 |
-0.4 |
-11.0 |
0.2 |
0.2 |
1.3 |
0.9 |
-0.2 |
|
Investment |
-5.0 |
-15.2 |
-23.4 |
-15.7 |
-8.2 |
-5.7 |
-3.9 |
-1.9 |
|
Net exports 1/ |
1.2 |
5.3 |
5.0 |
1.7 |
1.3 |
0.8 |
1.0 |
0.5 |
|
Consumer prices |
||||||||
|
End of period |
16.2 |
12.0 |
13.0 |
11.0 |
10.0 |
9.0 |
9.0 |
9.0 |
|
Average |
18.1 |
13.5 |
12.7 |
12.0 |
9.7 |
9.3 |
8.9 |
9.0 |
|
GDP deflator |
17.8 |
16.3 |
13.0 |
8.7 |
8.9 |
8.3 |
8.6 |
8.7 |
|
Monetary accounts |
||||||||
|
Rubel base money |
12.8 |
7.4 |
2.5 |
13.3 |
12.8 |
12.5 |
10.6 |
10.0 |
|
Broad money |
23.6 |
36.8 |
15.0 |
13.5 |
12.5 |
11.0 |
10.5 |
10.0 |
|
(Percent of GDP, unless otherwise indicated) |
||||||||
|
External debt and balance of payments |
||||||||
|
Current account balance |
-6.9 |
-3.8 |
-4.9 |
-4.8 |
-4.4 |
-4.2 |
-3.7 |
-3.3 |
|
Trade balance |
-3.5 |
-3.9 |
-6.6 |
-5.7 |
-5.3 |
-4.9 |
-4.2 |
-4.0 |
|
Exports of goods |
46.5 |
48.0 |
47.9 |
50.4 |
50.2 |
50.1 |
49.8 |
49.6 |
|
Imports of goods |
-50.0 |
-51.9 |
-54.5 |
-56.1 |
-55.5 |
-55.0 |
-54.0 |
-53.5 |
|
Gross external debt |
53.4 |
69.9 |
81.8 |
82.7 |
81.4 |
80.1 |
77.8 |
74.0 |
|
Public 2/ |
23.9 |
31.7 |
38.3 |
41.7 |
40.2 |
39.5 |
38.4 |
36.0 |
|
Private (incl. state-owned-enterprises) |
29.5 |
38.2 |
43.5 |
41.1 |
41.2 |
40.5 |
39.4 |
38.0 |
|
Net IIP |
-55.0 |
-75.0 |
-88.5 |
-90.2 |
-90.9 |
-92.2 |
-91.9 |
-90.1 |
|
Savings and investment |
||||||||
|
Gross domestic investment |
35.6 |
30.0 |
26.9 |
23.6 |
21.8 |
20.5 |
19.4 |
18.7 |
|
Government |
5.3 |
4.5 |
5.5 |
6.9 |
6.8 |
6.7 |
6.6 |
5.7 |
|
Nongovernment (incl. SOEs) |
30.2 |
25.5 |
21.3 |
16.7 |
15.0 |
13.8 |
12.8 |
12.9 |
|
National saving 3/ |
28.7 |
26.2 |
21.9 |
18.8 |
17.4 |
16.3 |
15.7 |
15.3 |
|
Government |
2.9 |
7.2 |
6.8 |
8.2 |
8.6 |
8.9 |
8.6 |
8.6 |
|
Nongovernment |
25.8 |
19.0 |
15.1 |
10.5 |
8.8 |
7.3 |
7.2 |
6.7 |
|
Public sector finance |
||||||||
|
State budget balance |
0.7 |
2.3 |
-1.5 |
-3.1 |
-3.0 |
-3.0 |
-2.8 |
-1.5 |
|
State budget balance (excl. nuclear power plant, "NPP") |
0.7 |
2.6 |
0.3 |
0.4 |
0.4 |
0.3 |
0.4 |
0.8 |
|
General government balance (incl. SPF) |
0.7 |
1.9 |
-1.9 |
-3.6 |
-3.3 |
-3.3 |
-3.1 |
-1.8 |
|
Primary general government balance |
2.0 |
3.6 |
0.4 |
-1.0 |
-0.5 |
0.1 |
0.5 |
1.8 |
|
Primary general government balance (excl. NPP) |
2.0 |
4.0 |
2.3 |
2.6 |
2.9 |
3.4 |
3.8 |
4.2 |
|
Cyclically adjusted primary balance 4/ |
-1.4 |
5.7 |
4.2 |
5.6 |
5.6 |
5.3 |
5.1 |
4.7 |
|
Overall balance 5/ |
0.0 |
-1.5 |
-2.8 |
-6.5 |
-6.2 |
-6.1 |
-6.0 |
-4.7 |
|
Gross general government debt and guaranteed debt 6/ |
37.3 |
53.7 |
54.9 |
59.2 |
62.8 |
65.7 |
68.2 |
69.2 |
|
Of which: Public guarantees |
12.5 |
14.5 |
14.5 |
14.5 |
14.5 |
14.5 |
14.5 |
14.5 |
|
Memorandum items: |
||||||||
|
Nominal GDP (billions of U.S. dollars) |
76 |
55 |
48 |
50 |
52 |
54 |
56 |
59 |
|
Nominal GDP (trillions of BYR) |
778 |
870 |
953 |
1,031 |
1,129 |
1,235 |
1,359 |
1,504 |
|
Terms of trade, percentage change |
2.2 |
-11.9 |
-8.9 |
-1.2 |
-1.2 |
-1.0 |
-0.7 |
-0.4 |
|
Real Effective Exchange Rate ( "-" denotes a depreciation) |
8.5 |
-9.2 |
||||||
|
Nominal Effective Exchange Rate ( "-" denotes a depreciation) |
-3.8 |
-12.6 |
||||||
|
Official reserves (billions of U.S. dollars) |
5.1 |
4.2 |
4.2 |
4.5 |
4.4 |
4.4 |
4.5 |
4.6 |
|
Months of imports of goods and services |
1.9 |
1.7 |
1.6 |
1.6 |
1.6 |
1.5 |
1.5 |
1.5 |
|
Percent of short-term debt |
37.2 |
35.4 |
36.0 |
38.6 |
37.1 |
36.0 |
36.7 |
36.3 |
|
Quota (2016): SDR 681.5 million (950.8 million U.S. dollars) |
||||||||
|
Sources: Belarusian authorities; and IMF staff estimates. 1/ Contribution to growth. 2/ Gross consolidated external debt of the public sector (central bank and general government debt including publicly guaranteed debt). 3/ The reduction in government saving and a corresponding increase in nongovernment saving include bank recapitalization and layouts related to public guaranteed debt. 4/ The augmented balance adds to the balance of the general government outlays for called guarantees of publicly guaranteed debt. 5/ Includes general government and off balance sheet operations. 6/ Consolidated debt of the non-financial public sector (general government debt including publicly guaranteed debt). |
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[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.
[2] 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 summing up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.
