IMF Executive Board Concludes 2016 Article IV Consultation with the Republic of Belarus

IMF News, September 21, 2016

Source details

Canonical URL

IMF Executive Board Concludes 2016 Article IV Consultation with the Republic of Belarus

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Published: September 21, 2016

Economic conditions and stabilization (2015–16)

• The economy contracted by 3.9 percent in 2015, with a similar performance in the first half of 2016, due to domestic structural weaknesses and external shocks.
• The exchange rate depreciated sharply during 2015 and part of 2016; since the shift to a more flexible exchange rate regime in early 2015, reserves have stabilized and, in recent months, begun to rise.
• Real wages are down substantially relative to 2014, and corporate losses have increased.
• Unemployment has risen somewhat, though remains at relatively low levels.
• Tighter fiscal and monetary policies during much of 2015–16 aided macroeconomic stabilization.
• Headline inflation slowed in recent months despite a sizeable hike in regulated utility tariffs in early 2016.

Vulnerabilities and financial sector risks

• Credit to the private sector has slowed and banks’ asset quality and profitability have weakened, resulting in rising non-performing loans.
• Systemic liquidity risks are elevated: banks are highly dollarized and carry asset-liability mismatches in some key foreign currencies.
• Public debt has risen despite 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.
• Corporate and bank balance sheets and household confidence remain sensitive to significant exchange rate movements owing to high dollarization, currency mismatches, limited access to foreign exchange liquidity, and significant annual gross external financing requirements.

Outlook and projections (baseline)

• The economy is expected to contract further in 2016 and 2017, reflecting still-weak balance sheets and structural impediments.
• A subdued recovery is expected as of 2018; over the medium term potential growth would only increase to around 1¾ percent, constrained by negative demographics and, absent deeper structural reforms, low productivity growth.
• Inflation is expected to gradually fall to the high single digits over the next few years.

Key baseline projections and indicators (2014–21)

• Real GDP: 1.7 (2014); -3.9 (2015); -3.0 (2016 Proj.); -0.5 (2017 Proj.); 0.5 (2018 Proj.); 1.0 (2019 Proj.); 1.3 (2020 Proj.); 1.8 (2021 Proj.)
• Total domestic demand: 0.3 (2014); -6.3 (2015); -9.7 (2016 Proj.); -3.6 (2017 Proj.); -0.8 (2018 Proj.); 0.1 (2019 Proj.); 0.3 (2020 Proj.); 1.3 (2021 Proj.)
• Consumption: 3.2 (2014); -2.0 (2015); -3.9 (2016 Proj.); 0.4 (2017 Proj.); 1.3 (2018 Proj.); 1.7 (2019 Proj.); 1.3 (2020 Proj.); 2.0 (2021 Proj.)
• Investment: -5.0 (2014); -15.2 (2015); -23.4 (2016 Proj.); -15.7 (2017 Proj.); -8.2 (2018 Proj.); -5.7 (2019 Proj.); -3.9 (2020 Proj.); -1.9 (2021 Proj.)
• Net exports (contribution to growth): 1.2 (2014); 5.3 (2015); 5.0 (2016 Proj.); 1.7 (2017 Proj.); 1.3 (2018 Proj.); 0.8 (2019 Proj.); 1.0 (2020 Proj.); 0.5 (2021 Proj.)
• Consumer prices, end of period: 16.2 (2014); 12.0 (2015); 13.0 (2016 Proj.); 11.0 (2017 Proj.); 10.0 (2018 Proj.); 9.0 (2019 Proj.); 9.0 (2020 Proj.); 9.0 (2021 Proj.)
• Consumer prices, average: 18.1 (2014); 13.5 (2015); 12.7 (2016 Proj.); 12.0 (2017 Proj.); 9.7 (2018 Proj.); 9.3 (2019 Proj.); 8.9 (2020 Proj.); 9.0 (2021 Proj.)
• GDP deflator: 17.8 (2014); 16.3 (2015); 13.0 (2016 Proj.); 8.7 (2017 Proj.); 8.9 (2018 Proj.); 8.3 (2019 Proj.); 8.6 (2020 Proj.); 8.7 (2021 Proj.)
• Rubel base money: 12.8 (2014); 7.4 (2015); 2.5 (2016 Proj.); 13.3 (2017 Proj.); 12.8 (2018 Proj.); 12.5 (2019 Proj.); 10.6 (2020 Proj.); 10.0 (2021 Proj.)
• Broad money: 23.6 (2014); 36.8 (2015); 15.0 (2016 Proj.); 13.5 (2017 Proj.); 12.5 (2018 Proj.); 11.0 (2019 Proj.); 10.5 (2020 Proj.); 10.0 (2021 Proj.)
• Current account balance (Percent of GDP): -6.9 (2014); -3.8 (2015); -4.9 (2016 Proj.); -4.8 (2017 Proj.); -4.4 (2018 Proj.); -4.2 (2019 Proj.); -3.7 (2020 Proj.); -3.3 (2021 Proj.)
• Trade balance (Percent of GDP): -3.5 (2014); -3.9 (2015); -6.6 (2016 Proj.); -5.7 (2017 Proj.); -5.3 (2018 Proj.); -4.9 (2019 Proj.); -4.2 (2020 Proj.); -4.0 (2021 Proj.)
• Exports of goods (Percent of GDP): 46.5 (2014); 48.0 (2015); 47.9 (2016 Proj.); 50.4 (2017 Proj.); 50.2 (2018 Proj.); 50.1 (2019 Proj.); 49.8 (2020 Proj.); 49.6 (2021 Proj.)
• Imports of goods (Percent of GDP): -50.0 (2014); -51.9 (2015); -54.5 (2016 Proj.); -56.1 (2017 Proj.); -55.5 (2018 Proj.); -55.0 (2019 Proj.); -54.0 (2020 Proj.); -53.5 (2021 Proj.)
• Gross external debt (Percent of GDP): 53.4 (2014); 69.9 (2015); 81.8 (2016 Proj.); 82.7 (2017 Proj.); 81.4 (2018 Proj.); 80.1 (2019 Proj.); 77.8 (2020 Proj.); 74.0 (2021 Proj.)
  • Public: 23.9 (2014); 31.7 (2015); 38.3 (2016 Proj.); 41.7 (2017 Proj.); 40.2 (2018 Proj.); 39.5 (2019 Proj.); 38.4 (2020 Proj.); 36.0 (2021 Proj.)
  • Private (incl. state-owned-enterprises): 29.5 (2014); 38.2 (2015); 43.5 (2016 Proj.); 41.1 (2017 Proj.); 41.2 (2018 Proj.); 40.5 (2019 Proj.); 39.4 (2020 Proj.); 38.0 (2021 Proj.)
• Net IIP (Percent of GDP): -55.0 (2014); -75.0 (2015); -88.5 (2016 Proj.); -90.2 (2017 Proj.); -90.9 (2018 Proj.); -92.2 (2019 Proj.); -91.9 (2020 Proj.); -90.1 (2021 Proj.)
• Gross domestic investment (Percent of GDP): 35.6 (2014); 30.0 (2015); 26.9 (2016 Proj.); 23.6 (2017 Proj.); 21.8 (2018 Proj.); 20.5 (2019 Proj.); 19.4 (2020 Proj.); 18.7 (2021 Proj.)
• State budget balance (Percent of GDP): 0.7 (2014); 2.3 (2015); -1.5 (2016 Proj.); -3.1 (2017 Proj.); -3.0 (2018 Proj.); -3.0 (2019 Proj.); -2.8 (2020 Proj.); -1.5 (2021 Proj.)
• General government balance (incl. SPF) (Percent of GDP): 0.7 (2014); 1.9 (2015); -1.9 (2016 Proj.); -3.6 (2017 Proj.); -3.3 (2018 Proj.); -3.3 (2019 Proj.); -3.1 (2020 Proj.); -1.8 (2021 Proj.)
• Primary general government balance: 2.0 (2014); 3.6 (2015); 0.4 (2016 Proj.); -1.0 (2017 Proj.); -0.5 (2018 Proj.); 0.1 (2019 Proj.); 0.5 (2020 Proj.); 1.8 (2021 Proj.)
• Overall balance 5/: 0.0 (2014); -1.5 (2015); -2.8 (2016 Proj.); -6.5 (2017 Proj.); -6.2 (2018 Proj.); -6.1 (2019 Proj.); -6.0 (2020 Proj.); -4.7 (2021 Proj.)
• Gross general government debt and guaranteed debt (Percent of GDP): 37.3 (2014); 53.7 (2015); 54.9 (2016 Proj.); 59.2 (2017 Proj.); 62.8 (2018 Proj.); 65.7 (2019 Proj.); 68.2 (2020 Proj.); 69.2 (2021 Proj.)
• Official reserves (billions of U.S. dollars): 5.1 (2014); 4.2 (2015); 4.2 (2016 Proj.); 4.5 (2017 Proj.); 4.4 (2018 Proj.); 4.4 (2019 Proj.); 4.5 (2020 Proj.); 4.6 (2021 Proj.)
• Months of imports of goods and services: 1.9 (2014); 1.7 (2015); 1.6 (2016 Proj.); 1.6 (2017 Proj.); 1.6 (2018 Proj.); 1.5 (2019 Proj.); 1.5 (2020 Proj.); 1.5 (2021 Proj.)
• Nominal GDP (billions of U.S. dollars): 76 (2014); 55 (2015); 48 (2016 Proj.); 50 (2017 Proj.); 52 (2018 Proj.); 54 (2019 Proj.); 56 (2020 Proj.); 59 (2021 Proj.)
• Nominal GDP (trillions of BYR): 778 (2014); 870 (2015); 953 (2016 Proj.); 1,031 (2017 Proj.); 1,129 (2018 Proj.); 1,235 (2019 Proj.); 1,359 (2020 Proj.); 1,504 (2021 Proj.)
• Terms of trade, percentage change: 2.2 (2014); -11.9 (2015); -8.9 (2016 Proj.); -1.2 (2017 Proj.); -1.2 (2018 Proj.); -1.0 (2019 Proj.); -0.7 (2020 Proj.); -0.4 (2021 Proj.)
• Quota (2016): SDR 681.5 million (950.8 million U.S. dollars)
• Real Effective Exchange Rate: 8.5 (2014); -9.2 (2015)
• Nominal Effective Exchange Rate: -3.8 (2014); -12.6 (2015)
• Percent of short-term debt: 37.2 (2014); 35.4 (2015); 36.0 (2016 Proj.); 38.6 (2017 Proj.); 37.1 (2018 Proj.); 36.0 (2019 Proj.); 36.7 (2020 Proj.); 36.3 (2021 Proj.)

Executive Board assessment and IMF recommendations

• Executive Directors welcomed measures taken since early 2015 to stabilize the economy and begin implementing institutional and structural reforms, but underscored need for sustained and far‑reaching reforms to reduce macrofinancial vulnerabilities, rebuild buffers, and raise growth and job prospects.
• Directors highlighted the importance of deeper reforms to unlock growth potential:
  • Implement a comprehensive reform strategy for state‑owned enterprises to improve productivity and efficiency and reduce fiscal risks, including stronger corporate governance and oversight and clearer mechanisms for addressing problem entities.
  • Identify clear, evenly paced measures to achieve full cost recovery in the utility sector by end‑2018.
  • Improve the business environment, including pursuit of WTO membership and steps to enhance product market competition.
• Fiscal policy recommendations:
  • Continue efforts to strengthen the fiscal framework.
  • Some easing is possible in the near term given the deep recession and negative output gap, followed by gradual medium‑term fiscal consolidation to reduce public debt while preserving space for enhanced social safety nets and capital expenditure.
  • Strengthen the debt anchor by encompassing government guarantees and local government debt.
  • Reflect in the budget all quasi‑fiscal support to enhance transparency.
  • Further pension reforms will be important.
• Monetary and exchange rate recommendations:
  • Urge a cautious monetary policy stance to preserve macroeconomic and financial stability, including tightening monetary aggregates if needed.
  • Gradually transition from quantitative targeting to inflation targeting in the medium term.
  • Continue to phase out directed lending and price controls; ensure prudential limits on interest rates are temporary.
  • Strengthen the central bank’s operational capacity and independence, including clarification of the primacy of price stability.
  • Maintain exchange rate flexibility and rebuild external buffers as conditions allow; welcome elimination of multiple currency practices and the shift to a more flexible exchange rate.
• Financial sector recommendations:
  • Implement Financial System Stability Assessment recommendations: transition to independent and risk‑based oversight; implement a comprehensive resolution strategy for nonperforming loans combined with corporate restructuring; strengthen macro‑prudential policies to mitigate foreign exchange liquidity risks from dollarization; design a well‑functioning financial safety net.
  • Urge follow up on shortcomings identified by asset quality reviews of major banks.
  • Emphasize that the Development Bank should maintain a limited and well‑targeted role.
• Directors noted the authorities’ interest in a Fund‑supported program and emphasized the importance of strong commitment at the highest level to consistent macroeconomic policies and deep, market‑oriented reforms.

References

• IMF Policy Advice -- A Factsheet