Statement by the IMF Mission to the Republic of Belarus

Press Release No. 13/96
March 27, 2013

An International Monetary Fund (IMF) team led by Mr. David Hofman visited Minsk during March 14–25, 2013 for the 2013 Article IV Consultation and fourth Post-Program Monitoring discussions. The team met with Deputy Prime Minister Piotr Prokopovich, Chair of the Board of the National Bank of the Republic of Belarus Nadezhda Ermakova, Minister of Finance Andrey Kharkovetz, Minister of the Economy Nickolai Snopkov, other officials and representatives from think tanks, business, and the diplomatic community. The team is grateful to the authorities and other counterparts for the constructive and open discussions.

At the conclusion of the mission, Mr. Hofman made the following statement in Minsk:

“Following a successful stabilization of the Belarus economy in early 2012, achieved by an impressive concerted tightening following the 2011 crisis, a subsequent rapid loosening of policies led to renewed volatility in the second half of the year, necessitating another policy reversal in the fall.

“The authorities should avoid a repeat of the stop-go policy pattern of 2012 and pursue predictable and consistent macroeconomic policies that promote stability. The policies of the government and the central bank should be closely coordinated and squarely focused on further reducing inflation and containing external imbalances. This is even more important as a deteriorating balance of payments and high external debt service pose challenges.

“Against this backdrop, the mission commends the government’s balanced budget target for 2013, but more is needed to ensure an appropriate stance of fiscal policies. In particular, the government should build on the reduction of directed and subsidized lending achieved in 2012, and aim for a sharp further reduction of such lending in 2013. It is also key to limit wage growth to help contain demand and restore competitiveness after last year’s high wage increases reversed much of the competitiveness gains from the 2011 devaluation. The mission advises that 2013 wage growth is kept at 12 percent, in line with the inflation target.

“On monetary policy, we recommend that the central bank stand ready to raise policy rates if the welcome reduction in inflation in February is not sustained over the next few months. Increases will also be needed if directed lending or wage policies adjust insufficiently or if exchange rate pressures reemerge. The flexible exchange rate policy should be continued. A close eye should be kept on rapid foreign currency lending growth, which poses increasing prudential risks. The central bank should consider further measures to curb this growth and the appropriate prohibition of foreign currency lending to households should be maintained.

“Deep structural reform remains critical to achieving higher sustainable growth. The government has made progress in some areas, including tax reform and the new bankruptcy law, but this has been offset by backward steps in other areas such as price liberalization and privatization. Therefore, a comprehensive, consistent and ambitious reform agenda is needed.

“Price liberalization, strengthening of property rights, privatization, state-owned enterprise restructuring, and establishment of targeted social benefits to protect the most vulnerable, remain key reform priorities. In this context, provisions in the draft new privatization law that aim to continue state interference in privatized companies risk undermining the benefits of privatization and should be reconsidered. Financial sector reform is also essential and a concentration of directed lending in the Development Bank would allow other banks to operate on market terms, ensuring that credit goes to the most viable enterprises and sectors.

“The IMF will maintain close cooperation with Belarus, including through intensive policy consultation and technical assistance. Negotiations on a new program continue to require a credible commitment at the highest level to a comprehensive policy package that could garner sufficient support among the IMF membership. Such a package would need to include consistent macroeconomic policies that safeguard stability, and concrete steps toward deep structural reform.”



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