{
  "title": "Belarus: Staff Concluding Statement of the 2017 Article IV Mission",
  "publication": "IMF News, November 9, 2017",
  "sourceUrl": "https://www.imf.org/en/news/articles/2017/11/09/ms110917-belarus-staff-concluding-statement-of-the-2017-article-iv-mission",
  "canonical": "https://www.imf.org/en/news/articles/2017/11/09/ms110917-belarus-staff-concluding-statement-of-the-2017-article-iv-mission",
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  "summary": "Real GDP:",
  "publishDate": "2017-11-09",
  "sections": [
    {
      "heading": "Recent developments and outlook",
      "content": "- Real GDP:\n  - A cyclical recovery is underway after \"a 6.4 percent cumulative drop during 2015-16\".\n  - Real GDP growth is estimated at \"1.7 percent in 2017\", driven by higher net exports and recovering domestic demand (consumption, wage increases, and consumer credit).\n  - Over the medium term, growth will increase to \"around 2 percent\", constrained by negative demographics, weak credit conditions, and lagging productivity and competitiveness.\n- Inflation and current account:\n  - Annual inflation is expected to decelerate broadly in line with the authorities’ objectives.\n  - The current account deficit narrowed with stabilization policies but is projected to widen temporarily because of imports associated with the nuclear power plant (NPP) project before narrowing again to \"under 2½ percent of GDP in the medium term\".\n- External financing and vulnerabilities:\n  - Near-term external financing pressures eased after mid-2017 energy and financing agreements with Russia and Eurobond issuance.\n  - External and public debt burdens are high.\n  - International reserves increased significantly during 2017 but remain below prudent levels.\n  - Corporate and bank balance sheets have been weakened by depreciation and recession.\n- Structural context:\n  - State-dominated enterprise sector remains inefficient, requiring fiscal injections and dragging on growth.\n  - Product and labor markets are rigid; the private sector’s role is relatively small.\n  - Authorities increasingly recognize structural weaknesses and propose measures to: (i) improve SOE operations, oversight, and corporate governance; (ii) strengthen private sector activity, boost SME growth, and attract FDI; and (iii) diversify exports and seek WTO accession."
    },
    {
      "heading": "Fiscal policy and public debt sustainability",
      "content": "- Fiscal stance and risks:\n  - Narrowly defined state budget balance has been kept under control, but quasi-fiscal activities continue to put upward pressure on debt.\n  - A more broadly defined fiscal deficit measure—including general government, financing of the NPP construction, and other off-balance sheet operations—is projected to rise to \"5-5½ percent of GDP over 2018-19\".\n  - Broadly defined general government debt (including general government guarantees) is projected to reach \"about 59 percent of GDP in 2019\".\n  - Staff’s medium-term sustainability objective: lower public debt toward \"a more sustainable level of 45 percent of GDP over the medium term\".\n- Fiscal policy recommendations:\n  - Continue fiscal consolidation over 2018-19, including a further consolidation in the range of \"0.5 percent of GDP over 2018-19\", while allowing major investment spending tied to NPP expenditures to taper off as planned.\n  - Supporting measures could include limiting growth of the public wage bill to nominal GDP growth.\n  - Strengthen the fiscal framework by: (i) expanding the coverage of the debt anchor and the annual budget balance target, (ii) considering an operational fiscal rule, (iii) strengthening fiscal risk assessment capacity, and (iv) implementing three-year medium term budgeting."
    },
    {
      "heading": "Real sector and structural reform priorities",
      "content": "- Need for faster real sector reforms:\n  - Slow pace of reforms risks lingering vulnerabilities and continued state involvement in resource allocation that spills over into financial sector and public debt, pressuring monetary and fiscal policies.\n- Key reform recommendations:\n  - Adopt a comprehensive strategy to significantly improve SOE efficiency and reduce quasi-fiscal pressures, including:\n    - Strengthen SOE corporate governance and oversight.\n    - Tighten budget constraints by cutting back directed lending and subsidies.\n    - Set up clear criteria for state ownership or privatization and allow exit of unviable enterprises.\n    - Enhance capacity to monitor and assess risks from SOEs.\n  - Continue and deepen efforts to remove impediments to private sector growth, promote competition (including in the agricultural sector), and further liberalize prices.\n  - Eliminate the end-2017 monthly wage target in favor of allowing firm-level wage adjustments linked to productivity; eliminate the tax on social dependency.\n  - Adjust household utility tariffs and lower costs to reach full cost recovery within two years; replace the current price subsidy to households with an expanded and better-targeted system of support for the poorest.\n  - Modernize the social safety net, including the unemployment framework, to provide cushion for SOE restructuring."
    },
    {
      "heading": "Monetary policy and exchange rate",
      "content": "- Achievements and constraints:\n  - Monetary policy has been successful in reducing inflation despite being burdened by quasi-fiscal activities.\n  - Dollarization is still high but has begun to fall; deposits are rising.\n- Policy recommendations:\n  - Create space for monetary easing by pursuing a tighter fiscal stance, reducing quasi-fiscal activities (particularly directed lending), and aligning wage increases with productivity growth.\n  - Continue laying groundwork for planned transition to inflation targeting by developing financial markets, reducing market distortions (specifically fiscal dominance), and strengthening the NBRB’s operational capacity and independence.\n  - Maintain current exchange rate regime as an important shock absorber and support exchange rate flexibility; limit interventions to preventing disorderly market conditions, seek opportunities to further liberalize the FX market, and rebuild reserves.\n  - Given still-high dollarization, increase competitiveness and lower the current account deficit primarily through structural reforms rather than exchange rate movements."
    },
    {
      "heading": "Financial sector stability",
      "content": "- Progress and remaining vulnerabilities:\n  - Significant work completed to strengthen financial sector stability and frameworks, including a 2016-17 asset quality review of banks and monetary/financial institutional upgrades.\n  - Vulnerabilities persist in banks and corporate sectors due to past depreciation and recession; quasi-fiscal activities remain a concern.\n- Recommended near-term steps:\n  - Continue implementation of the 2016 FSAP recommendations.\n  - Further strengthen bank regulation and supervision.\n  - Divest NBRB shareholdings in commercial banks to address potential conflict of interest and strengthen performance.\n  - Refine and broaden the risk management framework, and further enhance foreign currency risk management in banks.\n  - Strengthen and enhance the NPL resolution framework in the context of SOE restructuring.\n\nSource: Belarus: Staff Concluding Statement of the 2017 Article IV Mission, November 9, 2017 — IMF Communications Department.\n\n---\n\n\n References\n\n- Republic of Belarus and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2017/11/09/ms110917-belarus-staff-concluding-statement-of-the-2017-article-iv-mission"
    }
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    "Published: November 9, 2017",
    "Real GDP:",
    "Inflation and current account:",
    "External financing and vulnerabilities:",
    "Structural context:",
    "Fiscal stance and risks:",
    "Fiscal policy recommendations:",
    "Need for faster real sector reforms:",
    "Key reform recommendations:",
    "Achievements and constraints:",
    "Policy recommendations:",
    "Progress and remaining vulnerabilities:",
    "Recommended near-term steps:",
    "[Republic of Belarus and the IMF](http://www.imf.org/external/country/BLR/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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