Statement by the IMF Mission to the Republic of BelarusPress Release No. 12/402
October 29, 2012
An International Monetary Fund (IMF) team led by Mr. David Hofman visited Belarus during October 18–29, 2012 to hold Post-Program Monitoring discussions. The team met with Prime Minister Mikhail Myasnikovich, Chair of the Board of the National Bank of the Republic of Belarus Nadezhda Ermakova, Minister of the Economy Nickolai Snopkov, officials from the Presidential Administration, and representatives from think tanks, business, and the diplomatic community. The team is grateful to the authorities and other counterparts for the constructive and candid discussions.
At the conclusion of the mission, Mr. Hofman made the following statement today in Minsk:
“The authorities’ tightening of economic policies from late 2011 was successful in reducing inflation and stabilizing the foreign exchange market during the first half of 2012. However, the swift reduction in the refinancing rate and high real wage growth that followed this early success are now contributing to renewed signs of price and exchange rate pressures. These pressures call for a strong and coherent policy response to ensure that economic stability is preserved.
“In this regard, we welcome the increase in reserve requirements by the National Bank of the Republic of Belarus (NBRB) in September and its recent acknowledgement that the refinancing rate may soon be raised. Indeed, in our view, it should start raising policy rates without further delay to ensure that rates remain positive in real terms, thus protecting rubel deposit holders. We also welcome the Government’s determination to balance the budget in 2012 and 2013, which is consistent with stabilization.
“However, major additional steps are needed. In particular, it is important that a comprehensive and consistent policy effort is coordinated among all major policy makers—including at the highest level—and that clear priority is given to inflation and stability objectives over the official GDP growth targets, which we believe to be incompatible with those objectives. As one element of this effort, lending under government programs needs to be kept under a tight lid. This would be consistent with monetary policy objectives and curb credit growth and at the same time it would contain risks to the government’s budget. It is also critical that wages are not allowed to grow faster than the output that workers produce because such growth cannot be sustained and will result in additional pressures on prices and the exchange rate. The NBRB should continue its flexible exchange rate policy and seek to bolster reserves as a buffer against external shocks.
“Beyond macroeconomic policies, deep structural reforms remain vital to ensure sustainable output and income growth, and a durable increase in living standards. The urgency of such reforms is increasing rapidly with Russia’s recent accession to the World Trade Organization, which exposes Belarusian companies to greater international competition, and with skilled workers increasingly migrating abroad. Countering these developments requires large and sustained advances in productivity and competiveness.
“Key structural reforms include price liberalization, strengthening of private property rights, development of a strategy for state-owned enterprise restructuring and privatization, and establishment of targeted social and unemployment benefits to protect the most vulnerable people. Financial sector reform is also critical. In this context, the Development Bank should focus its mission on providing a transparent and contained vehicle for all lending under government programs. This would allow commercial banks to operate on market terms, so that credit is channeled to the most viable and efficient enterprises and sectors, thereby fostering modernization and economic growth.
“The IMF continues to work closely with the authorities to assist them in meeting the economic policy challenges. We will remain engaged through intensive policy consultation, technical assistance, and training. Negotiations on a possible new program would require agreement among all policy makers—including at the highest level—on a comprehensive policy package that garners sufficient support among the IMF membership. Such a package would need to include coherent policies that safeguard macroeconomic stability and a commitment to deep structural reform.”