Press Release: IMF Executive Board Approves US$2.46 Billion Stand-By Arrangement for Belarus
IMF News, January 12, 2009
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- Published: January 12, 2009
Overview
- Date: January 12, 2009.
- The Executive Board approved a 15-month SDR 1.62 billion (about US$2.46 billion) Stand-By Arrangement for Belarus to support adjustment to external shocks.
- An amount equivalent to SDR 517.8 million (about US$787.9 million) is 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.
- Belarus joined the IMF on July 10, 1992; its quota is SDR 386.4 million (about US$588.0 million).
- Belarus's latest prior arrangement with the IMF was a Stand-By Arrangement that expired on September 11, 1996.
Program objectives and terms
- Main objectives:
- Facilitate an orderly adjustment to external shocks.
- Address pressing vulnerabilities through macroeconomic adjustment measures and structural reforms.
- Immediate financing available: SDR 517.8 million (about US$787.9 million).
- Exceptional access: 418.8 percent of quota.
Key messages from Mr. Takatoshi Kato, Deputy Managing Director and Acting Chairman
- "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 the economy is likely to slow in 2009.
- Authorities have adjusted the exchange rate and put in place tight fiscal and wage policies; measures already taken and announced are strong and, with resolute implementation, will be sufficient to restore stability.
- Planned structural reforms in key areas should help return the economy to a higher growth path by 2010-11.
- Exchange rate adjustment:
- Adjustment of the exchange rate parity will help restore competitiveness and address external imbalances.
- Adoption of a new currency basket and wider band will leave the economy better able to adapt to external shocks.
- Increase in interest rates that preceded the shift in the exchange rate regime, and subsequent further upward adjustment, will help support the new exchange rate regime.
- Fiscal policy:
- Fiscal tightening will help bring demand into line with external financing constraints.
- Key measures include 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.
- Authorities plan to review the social safety net, in cooperation with the World Bank, to ensure protection for the most vulnerable against the downturn and utility tariff increases.
- Structural reform priorities:
- Price and wage liberalization should follow the realignment of the currency.
- Broader measures to support private sector development include reductions in the size of government, deregulation, and privatization, to be undertaken as fast as market conditions allow.
- Financial sector:
- Structural reform in the financial sector is an important priority.
- Authorities enacted a blanket deposit guarantee, but the framework for financial sector liquidity and solvency support still needs refinement.
- Purging the banking system of directed lending is crucial to improve incentives, manage risks, and strengthen banks' capital positions.
- Conclusion: The authorities have developed a strong macroeconomic program; their actions merit substantial Fund support and give confidence in a speedy return to stability and prospects for resumption of rapid growth if reforms are followed through.
Recent economic developments
- Growth record and drivers:
- GDP averaged close to 9 percent since 2002, with spare capacity and high investment underpinning production growth.
- Sharp export price gains, strong growth in trading partners, and large energy subsidies from Russia supported demand.
- Overheating and inflation:
- Economy has been overheating.
- Inflation rose from a 2006 low of 7 percent to currently 16 percent (as of the press release).
- Rise in inflation partly due to global food and energy shocks; domestic indicators—high credit growth, output growth above trend—point to overheating.
- External vulnerabilities:
- International reserves remained low during the boom.
- Some Russian energy prices were unwound.
- Exports to Western markets remained concentrated on oil products; higher value-added exports were mostly to the Commonwealth of Independent States (CIS).
- Credit risks from foreign exchange borrowing and funding exposure to the global banking system increased.
- Recent global developments exposed these vulnerabilities; the currency peg to the U.S. dollar came under pressure toward the end of 2008.
Program summary and key features
- Program goal: Facilitate adjustment to external shocks, reduce vulnerabilities, and implement structural reforms critical to mitigating vulnerabilities.
- Growth and inflation outlook:
- 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:
- Implementation of a new exchange rate regime:
- Devaluation to a new dollar parity and simultaneous switch to a currency basket that better reflects Belarus's trade and financial flows.
- Both measures implemented on January 1, 2009.
- Tight fiscal stance to contain domestic demand growth:
- Fiscal tightening aimed at slowing investment and consumption.
- Wage growth will slow in the budget and state enterprise sectors in 2009.
- Public investment will be restrained.
- Selected subsidies will be curtailed, while the social safety net will be strengthened to protect the most vulnerable.
- Structural policies emphasizing economic liberalization:
- Priority on price liberalization.
- Efforts to enhance private sector role by reducing tax distortions and regulatory burdens, and continuing privatization efforts.
Selected economic indicators, 2005-10 (annual percentage change, unless otherwise specified)
- Real GDP:
- 2005: 9.4
- 2006: 10.0
- 2007: 8.2
- 2008: 10.5
- 2009: 1.4
- 2010: 2.3
- Total domestic demand:
- 2005: 11.0
- 2006: 13.9
- 2007: 12.8
- 2008: 14.3
- 2009: -2.2
- 2010: 1.3
- Consumption:
- 2005: 10.1
- 2006: 9.0
- 2007: 9.7
- 2008: 10.7
- 2009: -0.7
- 2010: (not listed)
- Private consumption:
- 2005: 15.0
- 2006: 13.0
- 2007: 13.3
- 2008: 14.0
- 2009: -1.0
- 2010: 1.5
- Public consumption:
- 2005: 0.4
- 2006: -0.2
- 2007: 0.5
- 2008: 1.2
- 2009: 0.0
- 2010: 1.0
- Investment:
- 2005: 26.2
- 2006: 19.5
- 2007: 21.4
- 2008: -4.9
- 2009: (not listed)
- 2010: (not listed)
- Of which: fixed:
- 2005: 26.5
- 2006: 19.7
- 2007: 20.8
- 2008: -5.0
- Net exports (contribution to growth):
- 2005: 0.1
- 2006: -7.9
- 2007: -0.8
- 2008: -6.9
- 2009: 3.9
- 2010: 0.9
- Consumer prices, end of period:
- 2005: 7.9
- 2006: 6.6
- 2007: 12.1
- 2008: 13.7
- 2009: 11.5
- 2010: 8.0
- Consumer prices, average:
- 2005: 10.3
- 2006: 7.0
- 2007: 8.4
- 2008: 14.9
- 2009: 15.7
- 2010: 6.1
External debt and balance of payments (in percent of GDP unless otherwise specified)
- Current account:
- 2005: -3.9
- 2006: -6.8
- 2007: -7.6
- 2008: -5.4
- 2009: -3.6
- 2010: (not listed)
- Trade balance:
- 2005: -1.7
- 2006: -6.1
- 2007: -9.1
- 2008: -9.6
- 2009: -8.6
- 2010: -7.4
- Exports of goods:
- 2005: 53.3
- 2006: 53.7
- 2007: 54.3
- 2008: 57.2
- 2009: 52.5
- 2010: 54.1
- Imports of goods:
- 2005: -55.0
- 2006: -59.8
- 2007: -63.4
- 2008: -66.8
- 2009: -61.2
- 2010: -61.5
- Gross external debt:
- 2005: 17.0
- 2006: 18.5
- 2007: 28.0
- 2008: 25.3
- 2009: 32.4
- 2010: 33.9
- Public (gross consolidated debt of the public sector):
- 2005: 2.6
- 2006: 5.9
- 2007: 11.8
- 2008: 13.1
- Private (banks and state-owned enterprises):
- 2005: 14.4
- 2006: 16.3
- 2007: 21.5
- 2008: 19.4
- 2009: 20.6
- 2010: (not listed)
Savings and investment
- Gross domestic investment:
- 2005: 28.5
- 2006: 32.2
- 2007: 33.2
- 2008: 36.2
- 2009: 32.9
- 2010: 32.8
- (Other lines with values presented in the table:)
- 9.6
- 8.6
- 11.2
- 9.5
- 19.1
- 22.6
- 24.6
- 25.1
- 24.9
- 23.3
- National saving:
- 2005: 29.9
- 2006: 28.3
- 2007: 26.4
- 2008: 28.7
- 2009: 27.4
- 2010: 29.2
- (Other lines with values presented in the table:)
- -0.5
- 0.3
- 30.6
- 26.8
- 25.9
- 29.1
- 27.2
Public sector finance
- Central government balance:
- 2005: -0.6
- General government balance:
- (value not listed)
- Revenue:
- 2005: 47.4
- 2006: 49.1
- 2007: 50.0
- 2008: 52.2
- 2009: 48.9
- 2010: 48.5
- Expenditure:
- 2005: 48.0
- 2006: 47.6
- 2007: 49.6
- 2008: 52.7
- 2009: 48.6
- 2010: 49.2
- Of which, wages and subsidies and transfers (partial series shown):
- Wages: 8.1, 6.9, 6.4 (years not explicitly aligned in the table)
- Subsidies and transfers: 10.6, 8.8
Terms of trade and exchange rate indicators
- Terms of Trade:
- 2005: 12.3
- 2006: -2.5
- 2007: 8.7
- 2008: -3.5
- 2009: 1.6
- Real Effective Exchange Rate:
- 2005: -0.1
- 2006: -2.0
- 2007: -4.4
- 2008: -1.1
- 2009: -4.8
Official reserves and coverage indicators
- Official reserves (millions of U.S. dollars):
- 2005: 1,297
- 2006: 1,383
- 2007: 4,182
- 2008: 2,865
- 2009: 5,204
- 2010: 8,085
- Official reserves (months of imports of goods and services):
- 2005: 0.7
- 2006: 0.8
- 2007: 1.7
- Official reserves (percent of short-term debt):
- 2005: 39.3
- 2006: 31.6
- 2007: 56.8
- 2008: 33.5
- 2009: 62.2
- 2010: 91.5
Source: Press Release No. 09/05, IMF. The table and narrative reflect Belarusian authorities' data and IMF staff estimates as presented in the press release.