Statement by the IMF Staff Representative on the Republic of Belarus

Belarus’ economic growth has been impressive in the last few years. Belarus’ economic program is designed to facilitate adjustment to external shocks and reduce vulnerabilities. It includes a number of structural reforms on issues that are critical to the mitigation of vulnerabilities. On structural policies, the program places economic liberalization as a priority, particularly price liberalization. The program also envisages efforts to enhance the role of the private sector by reducing the distortion of taxes and the regulatory burden on private companies, and continuing privatization efforts.

Abstract

Belarus’ economic growth has been impressive in the last few years. Belarus’ economic program is designed to facilitate adjustment to external shocks and reduce vulnerabilities. It includes a number of structural reforms on issues that are critical to the mitigation of vulnerabilities. On structural policies, the program places economic liberalization as a priority, particularly price liberalization. The program also envisages efforts to enhance the role of the private sector by reducing the distortion of taxes and the regulatory burden on private companies, and continuing privatization efforts.

1. This statement provides information on developments since the staff report was issued. This information does not change the thrust of the staff appraisal.

2. All prior actions have been implemented. The staff report (Appendix III, Table 3) already indicated that two of the five prior actions had been observed. The remaining prior actions were implemented by January 6, 2009:

  • On January 2, 2009 the National Bank of the Republic of Belarus (NBRB) announced that the national currency would be repegged to a basket of equally weighted currencies consisting of the U.S. dollar, the Russian ruble, and the euro, and managed within a + 5 percent band around the central parity. Furthermore, the authorities have announced the central parity for the basket and the component exchange rates of the basket. The new exchange rate for the U.S. dollar against the Belarusian rubel implies a 20 percent devaluation of the rubel relative to its value on October 31, 2008.

  • On January 3, 2009, with a view to abolishing the ceiling on lending rates for rubel loans, the President of the Republic of Belarus signed a Resolution (09#x2013;124/1878) eliminating the Regulations (09/524#x2013;199, dated May 1, 2007 and 09#x2013;520/20, dated February 14, 2008) that had established such ceilings.

  • On January 6, 2009, to eliminate the possibility of further transfers to central and local government deposits in commercial banks, the Minister of Finance and the Governor of the NBRB jointly adopted an Amendment to Decision 447/D, Articles 2.2.1, 2.2.2, and 2.2.4 of November 28, 2006 that permitted such transfers to take place.

3. On the monetary policy front, the NBRB has raised all key interest rates by two percentage points during the week of January 5:

  • In the context of the devaluation on January 1, the NBRB announced an increase in the refinancing rate by 2 percentage points (to 14 percent) effective January 8.

  • The fixed Lombard rate of the NBRB was increased by 2 percentage points (to 22 percent) on January 5, implying also a similar increase in the rate applicable for uncollateralized loans (25 percent).

4. While there were some reports of public anger and uncertainty following the January 1 devaluation, monetary and reserves data so far do not show any serious loss of confidence in the currency or the banks:

  • There has reportedly been a rush to purchase imported durable goods. This appears to be based on the public’s anticipation that once goods already in stores are sold, new imports will be more expensive.

  • There have been withdrawals of rubel deposits from banks amounting to some 4¼ percent of rubel deposits. While this could, in part, be related to the sudden increase in demand for imported goods in a climate of general uncertainty, rumors of further devaluation or currency redenomination have also been responsible for the pressures. This has also been reflected in a modest increase in foreign exchange deposits held by the public.

  • Pressures on international reserves have generally remained contained—the level of gross international reserves, which stood at $3,061 million on January 1, had declined only marginally to $3,025 million on January 6.

  • The staff has remained in contact with the authorities, and has advised them to make foreign exchange and liquidity available to banks and currency exchanges, to be prepared to raise interest rates further should pressures persist, and to ensure that they pursue a clear and consistent communication strategy.

Republic of Belarus: Request for Stand-By Arrangement: Staff Report; Staff Supplement and Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for the Republic of Belarus.
Author: International Monetary Fund