IMF Executive Board Completes First Review Under Stand–By Arrangement with Belarus, Approves US$679.2 Million Disbursement, and Increases Financial Support to US$3.52 Billion

This paper discusses key findings of the First Review under the Stand-By Arrangement for the Republic of Belarus. All end-March 2009 quantitative and continuous performance criteria and structural benchmarks were met, except for the net international reserves target, which was missed by US$221 million. A sharp fall in demand for Belarus’s exports and a worsening of the capital account has led to the re-emergence of a substantial financing gap for 2009. The authorities have committed to adjust exchange rate and monetary policies, and to maintain a balanced budget despite lower revenue.

Abstract

This paper discusses key findings of the First Review under the Stand-By Arrangement for the Republic of Belarus. All end-March 2009 quantitative and continuous performance criteria and structural benchmarks were met, except for the net international reserves target, which was missed by US$221 million. A sharp fall in demand for Belarus’s exports and a worsening of the capital account has led to the re-emergence of a substantial financing gap for 2009. The authorities have committed to adjust exchange rate and monetary policies, and to maintain a balanced budget despite lower revenue.

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Belarus’s performance under a program supported by a Stand-By Arrangement (SBA) and increased the financial support to SDR 2.27 billion (about US$3.52 billion), equivalent to 587 percent of Belarus’s quota or 7 percent of its GDP. These decisions enable the disbursement of SDR 437.93 million (about US$679.2 million), bringing total disbursements under the program so far to SDR 955.73 million (about US$1.48 billion). The Board also granted a waiver of nonobservance of end-March performance criterion on net international reserves, and approved a modification of the end-June performance criteria.

The original 15-month SDR 1.62 billion (about US$2.51 billion) SBA was approved on January 12, 2009 (see Press Release No. 09/05). The revised arrangement will support the government’s economic program and help Belarus to contain the effects of a greater than expected impact from the global financial crisis. To reduce the resulting financing gap, the authorities will maintain a balanced budget in 2009, despite lower revenues; keep monetary policy adequately tight; allow more exchange rate flexibility within a fluctuation band which is now ±10 percent around the parity rate; and deepen structural reforms.

Following the Executive Board’s discussion on Belarus, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:

“Belarus’s economy has been hit hard by a fall in external demand and volatile cross-currency movements since the program was approved in January. The strengthened adjustment strategy under the revised program responds to these developments. It strikes a balance between additional policy adjustment, using all policy instruments available, and enhanced IMF financial support to close the financing gap during the program period. It also includes stepped up efforts toward liberalizing the economy and preparing for privatization to bolster growth prospects over the medium term.

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“The authorities have depreciated the rubel and widened the exchange rate band. These measures should help improve the current account, allow greater exchange rate flexibility, and alleviate pressure on international reserves. The authorities have also tightened monetary policy through increases in policy interest rates and recommendations to commercial banks to increases interest rates on rubel term household deposits. These measures will increase the attractiveness of holding rubel deposits, instill confidence in the currency and help to build central bank credibility. It will be important to maintain tight monetary policy and to resist excessive increases in credit to the economy to boost domestic demand, which could undermine external adjustment.

“The authorities’ decision to continue to pursue a balanced budget for the general government in 2009 despite lower projected revenue is commendable, as is the prudent plan to postpone public sector wage increases. The planned increase in targeted social assistance to the most vulnerable households will help those most severely affected by the crisis.

“The revised program envisages stronger efforts to liberalize the economy and prepare for privatization, which are essential to improve prospects for long-run growth and external stability. Concrete steps include the enactment of a privatization law that conforms to best practices, and the establishment of a privatization agency capable of advancing an ambitious privatization agenda. Other structural measures under the program, including legislative changes to increase the central bank’s independence and plans to reduce further price and wage controls and remove mandatory production and employment targets for private companies, will improve governance and the business climate,” Mr. Kato stated.

Republic of Belarus: First Review Under the Stand-By Arrangement, and Request for a Waiver of Performance Criterion, Augmentation of Access, and Modification of Performance Criteria: Staff Report; Staff Supplement; Staff Statement; Press Release on the Executive Board
Author: International Monetary Fund