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© 2007 International Monetary Fund
September 2007
IMF Country Report No. 07/310
Republic of Belarus: 2007 Article IV Consultation—Staff Report; Staff Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the Republic of Belarus
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2007 Article IV consultation with the Republic of Belarus, the following documents have been released and are included in this package:
The staff report for the 2007 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on June 4, 2007, with the officials of the Republic of Belarus on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on August 10, 2007. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A staff supplement of August 22, 2007 updating information on recent developments.
A Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its August 24, 2007 discussion of the staff report that concluded the Article IV consultation.
Statement by the Executive Director for the Republic of Belarus.
The document listed below has been or will be separately released.
Statistical Appendix
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.
Copies of this report are available to the public from
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International Monetary Fund
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INTERNATIONAL MONETARY FUND
REPUBLIC OF BELARUS
Staff Report for the 2007 Article IV Consultation
Prepared by Staff Representatives for the 2007 Consultation with the Republic of Belarus
Approved by Poul M. Thomsen and Martin J. Fetherston
August 10, 2007
Executive Summary
Discussions were held in Minsk during May 23–June 4, 2007. Staff met with Deputy Prime Minister Kobyakov, Minister of Economy Zaichenko, Minister of Finance Korbut, National Bank of the Republic of Belarus (NBRB) Chairman Prokopovich, representatives of the presidential administration, other senior officials, members of parliament, representatives of the business and academic communities, and the press.
Staff team: Mr. Horváth (head), Mr. Mates (Senior Moscow Resident Representative), Ms. Hassine, Ms. Koliadina, Mr. Ross (all EUR), assisted by Resident Representative office staff. Mr. Kiekens (Executive Director for Belarus) joined some meetings.
Background: The economy has expanded rapidly since 2004. However, rising energy import prices from 2007 represent a large permanent income loss, straining Belarus’s centralized economy.
Discussions focused on the appropriate policy response:
Staff assessed the real exchange rate as overvalued by some 10 percent. The authorities disagreed and saw no problem with competitiveness. Staff noted that maintaining the exchange rate peg under the authorities’ planned policies could entail unsustainably high current account deficits over the medium term.
The NBRB was confident it can maintain the peg and restrain inflation despite rapid credit growth. The authorities viewed adjustment as feasible within the existing policy framework. They have tightened fiscal policy so far this year (while envisaging a full-year deficit), moderated wage growth, partially increased energy prices, strengthened price controls, and secured large-scale foreign financing. They expected public investment and concessional lending to encourage energy savings, as well as export-oriented and import-substituting activities.
Staff argued that while reliance on foreign financing was possible for some time, adjustment was unavoidable since the terms-of-trade change was permanent. Thus, early adjustment through a tighter policy mix commensurate with the economy’s real income loss was needed, including a full energy price pass-through, no fiscal stimulus given the accommodating policy mix and the exchange rate peg, and a phase-out of directed lending to contain credit growth. Structural reforms were necessary to reduce unit labor costs.
Financial sector discussions focused on risks stemming from marked credit growth, government operations through the banking system, and banks’ foreign liabilities.
Contents
I. Introduction
A. Economic Developments
B. Policy Developments
II. Report on the Discussions
A. Medium-Term Outlook
B. Fiscal Policy
C. Exchange Rate and Monetary Policies
D. Financial Sector Policies
E. External and Structural Policies
III. Staff Appraisal
Tables
1. Selected Economic Indicators, 2003–12
2. Monetary Accounts, 2003–08
3. Fiscal Indicators and Projections, 2003–12
4. Balance of Payments, 2003–12
5. Indicators of External Vulnerability and Financial Soundness, 2003–07
Figures
1. Indicators of Real Activity, 2001–06
2. Indicators of Inflation, 2001–06
3. External Competitiveness, 1995–2006
4. Evolution of External Position, 2002–06
5. Fiscal Developments, 2003–07
6. Monetary Developments, 2003–07
7. Credit Developments, 2001–07
8. Banking Sector Developments, 2001–06
9. Macroframework Scenarios
Appendices
I. External DSA
Table I.1. External Debt Sustainability Framework, 2002–12
Figure I.1. External Debt Sustainability: Bound Tests
II. Public DSA
Table II.2. Public Sector Debt Sustainability Framework, 2002–12
Figure II.2. Public Sector Debt Sustainability: Bound Tests
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INTERNATIONAL MONETARY FUND
REPUBLIC OF BELARUS
Staff Report for 2007 Article IV Consultation—Informational Annex
Prepared by the European Department
August 10, 2007
Contents
I. Fund Relations
II. Relations with the World Bank
III. Statistical Issues
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INTERNATIONAL MONETARY FUND
REPUBLIC OF BELARUS
Staff Report for the 2007 Article IV Consultation
Supplementary Information
Prepared by the European Department
Approved by Michael Deppler and Anthony R. Boote
August 22, 2007
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Public Information Notice (PIN) No. 07/108
FOR IMMEDIATE RELEASE
August 30, 2007
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431USA
