Journal Issue

IMF Executive Board Concludes 2017 Article IV Consultation with Belarus

International Monetary Fund. European Dept.
Published Date:
December 2017
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On December 13, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Belarus.

The Belarusian economy is recovering after two years of recession, helped by better policies, a more favorable external environment, and stronger domestic demand conditions. In 2017Q3 the economy grew by 1.7 percent year-on-year, amid household consumption boosted by strong wage growth and recovering investment. The current account deficit has narrowed, reflecting growth in services exports, as well as recession and real exchange rate adjustment in 2015-16. The 2017 energy and financing agreements with Russia, and the successful Eurobond issuance in the middle of the year, have eased near-term financing pressures. Headline inflation slowed to 5.3 percent y-o-y in October, helped by tighter control over monetary aggregates, imported disinflation, a negative output gap, and a slowdown in administered price hikes.

The authorities have kept their narrowly defined state budget under control, but estimated sizable quasi-fiscal activities continue to put upward pressure on debt. The overall fiscal balance, including the general government, Nuclear Power Plant, and other off-balance sheet operations, is projected to show a deficit of 3.0 percent of GDP in 2017, reflecting the quasi-fiscal operations. Public and publicly guaranteed debt is projected to rise to just above 55 percent of GDP. The authorities have also taken important steps to address financial sector risks, drawing on 2016 FSAP recommendations. Efforts to restructure the large SOE sector are proceeding gradually and on a pilot basis, hindering productivity growth and leaving vulnerabilities to linger at relatively elevated levels.

Medium-term growth is expected to be around 2 percent, limited by negative demographics, weak credit conditions reflecting impaired corporate and bank balance sheets, and lagging competitiveness under the state-centric economic model. Inflation is projected to reach 5 percent in the medium term, assuming some control over quasi fiscal activities, but remain above most neighbors. The current account deficit is projected to narrow to just under 2½ percent, as one-off factors dissipate and the economy reaches potential.

Executive Board Assessment2

Executive Directors welcomed the improvement in macroeconomic and financial policies over the last 2½ years. Directors recognized that these policies have helped to support the economic recovery, along with a more favorable external environment. However, they emphasized that vulnerabilities remain high and further efforts are needed, including to address structural weaknesses. In this context, continued active engagement between the Fund and the Belarusian authorities is important.

Directors encouraged the authorities to use the economic recovery to implement deeper, faster reforms in the real sector to increase productivity, raise growth, and boost the economy’s resilience to shocks. To help achieve this, they saw a critical need to reform the state-owned enterprise (SOE) sector. Directors also stressed the need to implement measures to improve labor and product markets to remove impediments to private sector growth. The efficiency of social safety nets should also be enhanced to cushion the impact of reforms on vulnerable social groups. Directors noted that wage increases should be consistent with productivity growth.

Directors recommended continued fiscal consolidation over the medium term to ensure public debt sustainability. For 2018, they encouraged the authorities to adopt a tighter fiscal stance, including through stronger control over off-balance sheet fiscal activities and reduction of quasi-fiscal risks emanating from the SOE sector. Directors also recommended a stronger, simpler framework to aid planning, management and execution of fiscal policy.

Directors recommended that monetary policy should remain consistent with inflation objectives and noted the importance of laying the groundwork for a future transition to inflation targeting. This should be supported by further efforts to limit fiscal dominance and align wage increases to productivity growth. Directors encouraged the authorities to maintain exchange rate flexibility while seeking opportunities to rebuild international reserves as conditions allow to achieve a more robust cushion against external shocks.

Directors welcomed progress made in strengthening financial sector stability and framework. Further action is needed to eliminate directed lending, strengthen regulation and supervision, and improve bank balance sheets. Directors encouraged continued implementation of the 2016 FSAP recommendations.

Belarus: Selected Economic Indicators, 2014-2018
(Percent Change)
National accounts
Real GDP1.7−3.8−
Total domestic demand0.0−7.6−
Net exports 1/−0.3
Consumer prices (average)18.113.511.86.47.0
Monetary accounts
Rubel base money12.87.4−1.437.613.2
Broad money23.636.83.810.710.6
(Percent of GDP)
External debt and balance of payments
Current account balance−6.6−3.3−3.5−2.6−3.3
Gross external debt50.867.979.273.171.2
Net IIP−53.1−72.8−86.1−79.0−79.9
Savings and investment
Gross domestic investment34.829.025.324.326.1
National saving28.225.821.721.722.8
Public sector finance
General government balance (incl. SPF)0.81.1−0.3−0.6−3.0
of which: NPP-related expenditure0.
Primary general government balance (excl. NPP)
Overall balance 2/0.1−2.2−3.5−3.0−5.0
of which: Off-balance sheet operations (estimated)−0.7−3.3−3.2−2.5−1.9
Gross public and publicly guaranteed debt38.853.053.955.358.1
Of which: Public guarantees12.114.011.310.410.7
Memorandum items:
Nominal GDP (billions of U.S. dollars)78.756.347.453.355.0
Nominal GDP (billions of BYN)80.689.994.3102.1111.0
Official reserves (billions of U.S. dollars)
Months of imports of goods and services1.
Percent of short-term debt39.536.446.468.060.4
Quota (2016): SDR 681.5 million (923.5 million U.S. dollars)
Sources: Belarusian authorities; and IMF staff estimates.

Contribution to growth.

Includes general government and estimated off-balance sheet operations.

Sources: Belarusian authorities; and IMF staff estimates.

Contribution to growth.

Includes general government and estimated off-balance sheet operations.

1Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
2At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:

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