This 2004 Article IV Consultation highlights that macroeconomic developments in Belarus in 2003 were mixed. Although in real terms GDP, industrial production, and agriculture all grew by 6.8 percent; according to official data prepared on Belarusian national methodology growth, would be lower on international methodology. Fiscal policy was fairly tight during 2003, mainly owing to limited sources of available financing, such as privatization proceeds. The outlook for 2004 is uncertain. Under current policies, inflation is expected to reach about 22 percent, and real GDP growth is likely to slow to about 4¾ percent.

Abstract

This 2004 Article IV Consultation highlights that macroeconomic developments in Belarus in 2003 were mixed. Although in real terms GDP, industrial production, and agriculture all grew by 6.8 percent; according to official data prepared on Belarusian national methodology growth, would be lower on international methodology. Fiscal policy was fairly tight during 2003, mainly owing to limited sources of available financing, such as privatization proceeds. The outlook for 2004 is uncertain. Under current policies, inflation is expected to reach about 22 percent, and real GDP growth is likely to slow to about 4¾ percent.

1. This statement provides information that has become available since the staff report was circulated. It does not alter the thrust of the staff appraisal.

2. Although growth was reportedly robust in early 2004, so was inflation. On official data, real GDP grew by 9.3 percent in Q1 (year-on-year, yoy), driven by industrial production (itself up by 13 percent). Inventories fell slightly, but the share of loss-making enterprises remained high at 46 percent. Inflation stayed at 22 percent (yoy). Preliminary data suggest that strong growth in external trade turnover continued; goods and services exports in January–February grew by 23 percent over the same period of 2003, while imports grew by 15 percent. International reserves crept up slightly. (The authorities intend to bring gross reserves to about $1 billion—one month of imports—by year-end.)

3. Fiscal policies for 2004 have been loosened somewhat. Although the fiscal stance was quite tight during Q1 (the general government cash surplus is estimated at over 3 percent of quarterly GDP), the 2004 budget has been amended twice since initial passage in December. The deficit target for the year has been increased by 0.3 percentage points of GDP, mainly to accommodate spending on subsidized housing in rural areas, and is now just under 2 percent.

4. The exchange rate anchor has helped to restrain inflation, despite relatively loose monetary policy. Reserve money grew by 71 percent (yoy) at end-March, and broad money by 50.3 percent. To some extent, stronger money demand is due to the fact that the exchange rate has been essentially fixed against the dollar since January 1, 2004. Although the currency union with Russia seems increasingly unlikely to materialize in 2005, the authorities still say they intend to peg to the Russian ruble on July 1, 2004 (albeit within a ±5 percent band).

5. Progress with structural reforms continues to be mixed. In a positive development, the Social Protection Fund has been brought into the budget and, from April 1, 2004, its accounts are being serviced by the treasury system. Also, the proposal to require public enterprises to shift their bank accounts to state commercial banks (SCBs) seems to have been shelved (though some smaller enterprises have moved their accounts to SCBs voluntarily). On the other hand, a March presidential decree rescheduled all of the tax and energy debt of the agricultural sector on very favorable terms, while under another decree bankruptcy was prohibited for 183 strategically important enterprises.

6. The authorities are implementing measures proposed by a recent STA data ROSC mission, as they hope to subscribe to the SDDS fairly quickly. In particular, the reserves template is now on the NBB website (http://www.nbrb.by/statistics/Sstandard/report.pdf), though STA has not reviewed it. Similarly, long-term time series price indices are now posted by the Ministry of Statistics (http://www.president.gov.by/Minstat/en/specst/price3.htm).