Belarus—Technical Memorandum of Understanding (TMU)
Author:
International Monetary Fund
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Publication Date:
30 Dec 2009
eISBN:
9781451805321
Language:
English
Keywords:
ISCR; CR; September; reform effort; policy; draft decree; anti-crisis fund; end-December NIR; NBRB vis-à-vis nonresident; NBRB account; project support; NIR of the NBRB; NBRB's methodology; Currencies; Budget planning and preparation; Exchange rates
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This 2009 Article IV Consultation highlights that Belarus has so far escaped a significant fall in output, despite a sharp fall in external demand. GDP declined 0.5 percent year over year in the first eight months of 2009, comparing favorably to Belarus’ main trading partners. Economic activity has been bolstered by strong domestic demand, especially for housing construction financed under government programs. Executive Directors have applauded the authorities’ commitment to a tight fiscal policy, with revenue shortfalls being offset by spending restraint while protecting priority social spending.

Abstract

This 2009 Article IV Consultation highlights that Belarus has so far escaped a significant fall in output, despite a sharp fall in external demand. GDP declined 0.5 percent year over year in the first eight months of 2009, comparing favorably to Belarus’ main trading partners. Economic activity has been bolstered by strong domestic demand, especially for housing construction financed under government programs. Executive Directors have applauded the authorities’ commitment to a tight fiscal policy, with revenue shortfalls being offset by spending restraint while protecting priority social spending.

September 30, 2009

1. This memorandum sets out the understandings between Belarus’s authorities and the IMF staff regarding the definitions of performance criteria and prior action. The performance criteria are reported in Table 2 of the Letter of Intent (LOI) dated September 30, 2009.

2. The definitions of the performance criteria and the adjustment mechanisms, as well as of the prior action, are described in Section I below. Reporting requirements are specified in Section II.

3. The exchange rates and the price of gold to be used for the purpose of monitoring the program are in Table 1 of this attachment, and benchmarks for calculating the adjustors in Table 2.

Table 1.

Program Exchange Rates as of End-November, 2008

article image

Rate as of November 28, 2008 (www.IMF.org).

NBRB official rate as of November 30, 2008 disseminated on www.nbrb.by.

CBR official rate as of November 29, 2008, disseminated on www.cbr.ru.

Reference rate as of November 28, 2008, disseminated on www.ecb.int.

Table 2.

Assumptions for Calculating Adjustors under the Stand-By Arrangement for 2009

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Source: Belarusian authorities.

I. Quantitative Targets

A. Floor on Net International Reserves of the National Bank of the Republic of Belarus (NBRB)

Definition

4. Net international reserves (NIR) of the NBRB are defined as the difference between gross international reserve assets and reserve liabilities, evaluated in U.S. dollars at the program exchange rates (Table 1). Gross international reserve assets are defined as readily available claims on nonresidents, denominated in foreign convertible currencies. They include the NBRB’s holdings of monetary gold, SDRs, foreign currency cash, foreign currency securities, deposits abroad, and the country’s reserve position at the Fund. Excluded from gross international reserve assets are:

  • any assets denominated in foreign currencies held at, or which are claims on, domestic institutions (i.e., institutions headquartered domestically, but located either domestically or abroad, or institutions headquartered abroad, but located domestically);

  • any precious metals or metal deposits, other than monetary gold, held by the NBRB;

  • any reserve assets that are: (i) encumbered; or (ii) pledged as collateral (in so far as not already included in foreign liabilities); or (iii) frozen; and

  • any reserve assets that are not readily available for intervention in the foreign exchange market, inter alia, because of lack of quality or lack of liquidity that limits marketability at the book price.

5. For the purpose of this program, reserve liabilities comprise:

  • all short-term liabilities of the NBRB vis-à-vis nonresidents with an original maturity of one year or less;

  • all foreign exchange liabilities to resident entities (e.g. claims in foreign exchange of domestic banks on the NBRB) excluding (i) foreign exchange liabilities to the general government, to the Agency for Deposit Guarantee, and (ii) the NBRB’s foreign exchange transitory accounts;

  • the stock of IMF credit outstanding; and

  • the nominal value of all derivative positions 1 of the NBRB and government, implying the sale of foreign currency or other reserve assets against domestic currency.

6. For program monitoring purposes, the stock of foreign assets and foreign liabilities of the NBRB shall be valued at program exchange rates, as described in paragraph 3 above. On this basis, and consistent with the definition above, the stock of NIR amounted to $2,541 million on November 30, 2008. In addition, a purchase from the IMF will be reflected in the stock of IMF credit outstanding on the same day when the purchase is reflected in the gross international reserves.

Adjustment mechanism

1. The floor on the NIR of the NBRB is subject to an automatic adjustor, based on deviations of external balance of payments support (defined as disbursements from bilateral and multilateral creditors to the NBRB), or external Republican government 2 budget support and privatization proceeds from program projections (Table 2 of the LOI).

A. If the proceeds from external balance of payments support to the NBRB (in U.S. dollars evaluated at program exchange rates):

  • a) cumulatively exceeds program projections, the floor on the NIR of the NBRB will be adjusted upward by 100 percent of the excess in external balance of payments support; and

  • b) in any quarter falls short of program projections, the floor on the NIR of the NBRB will be adjusted downward by 100 percent of the shortfall in that quarter, 50 percent of the shortfall in the previous quarter. Disbursements in excess of its programmed level in any quarter, will be fully applied to reduce the shortfall for the previous quarter in calculating the adjusted target.

B. If the proceeds from external Republican government budget support and external privatization proceeds (valued in U.S. dollars at program exchange rates):

  • cumulatively exceed program projections, the floor on the NIR of the NBRB will be adjusted upwards by 50 percent of the excess in external budget support and privatization proceeds; and

  • in any quarter falls short of program projections, the floor on the NIR of the NBRB will be adjusted downward by 100 percent of the shortfall in that quarter, and 50 percent of the shortfall in the previous quarter. Disbursements in excess of its programmed level in any quarter, will be fully applied to reduce the shortfall for the previous quarter in calculating the adjusted target.

2. If Belarus participates in any SDR allocation(s) between March 31, 2009 and any subsequent test dates, the NIR target will be adjusted upwards by 100 percent of the equivalent of the amount of the cumulative additional SDR allocation(s) up to the test date, measured at program exchange rates.

B. Ceiling on Net Domestic Assets of the NBRB

Definition

9. Net domestic assets (NDA) of the NBRB is defined as the difference between the NBRB’s monetary base, as defined by the NBRB’s methodology as of March 31, 2009, and NIR. The NIR of the NBRB is defined as in paragraph 4 above.

10. Performance against the NDA target will be measured at program exchange rates. On this basis, and consistent with the definition above, the NBRB’s NDA amounted to RBL 2,112 billion on November 30, 2008.

Adjustment mechanism

11. The ceiling on the NDA of the NBRB is subject to an automatic adjustor, based on adjustment of the NIR of the NBRB, as stipulated in paragraphs 7 and 8 above.

C. Ceiling on the Cash Deficit of the General Government

Definitions

12. The general government includes the Republican government and local governments. The Republican government is defined as the central government ministries, the funds included in the Republican budget, including the National Development Fund and the Social Protection Fund. In case the government establishes new extrabudgetary funds, they will be integrated into the Republican government.

13. The cash deficit of the general government will be measured from the financing side as the sum of (i) net domestic financing from banks and nonbanks, (ii) net external financing, and (iii) privatization receipts.

(i) Net domestic financing consists of bank and nonbank financing to the general government and will be defined as follows:

  1. The change in the claims on the general government of commercial banks minus the change in deposits held by the general government in commercial banks, net of revaluation effect for foreign currency deposits.

  2. The change in the claims on the general government of the NBRB minus the change in deposits of the general government held at the NBRB in RBLs and foreign currency, net of revaluation effect for foreign currency deposits.

  3. Net claims on the general government of the commercial banks and the NBRB will be monitored based on the monetary survey prepared by the NBRB.

  4. Also included are any other liability instruments issued by the general government, for example, promissory notes, any other increase in liability of the general government to domestic nonbank institutions.

  5. Net sales of Treasury bills, bonds, or other government securities to nonbank institutions and households (including nonresidents and nonresident financial institutions), plus any other increase in liability of the general government to domestic nonbank institutions.

(ii) Net external financing is defined as:

  1. Total of loans disbursed to the general government for general budget support and project financing, the change in the stock of outstanding international bonds, net change in external arrears, change in the accounts of the Republican government abroad, minus amortization. Amortization includes all external debt-related payments of principal by the general government.

  2. Amortization to external creditors via third parties is accounted for at the time and in the amount of payment by the budget to the third party, rather than at the time of recognition of amortization by the external creditor.

(iii) Privatization receipts:

  1. The privatization receipts of the general government consist of all transfers of monies received by the Ministry of Finance in connection with the sale of general government assets, including privatization proceeds, which were transferred to the National Development Fund.

  2. This includes receipts from the sales of shares, the sale of assets and the sale of licenses with duration of 10 years and longer.

14. For the purposes of measuring the deficit of the general government, all flows to/from the budget in foreign currency will be converted into RBLs at the official exchange rate prevailing at close of business on the date of the transaction. On this basis, and consistent with the definition above, the cash deficit of the general government in the first half of 2009 amounted to 961 billion rubels.

Adjustment mechanism

15. The ceilings on the cash deficit of the general government for end-September and end-December are subject to automatic adjustors, based on deviations of external budget and project support from program projections (Table 2 of the LOI). If the total proceeds from external budget and project support (excluding from international financial institutions and projects initiated before the original program) to the general government budget (in RBLs converted at the official exchange rate on the days of its receipt):

  • Cumulatively exceed program projections, the ceiling on the cash deficit of the general government will be adjusted upwards by 50 percent of the excess in budget and project support to the government.

  • Cumulatively falls short of program projections, the ceiling on the cash deficit of the general government will be adjusted downward by 50 percent of the shortfall in the previous quarter, if any. Disbursements in excess of its programmed level in any quarter, will be fully applied to reduce the shortfall, if any, for the previous quarter in calculating the adjusted target.

  • For project support from international financial institutions, if disbursements in foreign currency exceed (fall short of) program projections, the ceiling on the cash deficit of the general government will be adjusted upwards (down) by 100 percent of the excess (shortfall) in project support.

  • For project support for projects initiated before the original program was approved, the ceiling on the cash deficit of the general government will be adjusted upwards by 100 percent of the excess in project support. The adjustor for such projects is capped at $353 million.

16. The ceiling on the cash deficit of the general government is also subject to an automatic adjustor for recapitalization of banks. Specifically, the ceiling on the deficit will be adjusted upward for the amount of funds provided by the Republican budget to banks to bring their regulatory capital to minimum statutory levels.

17. Total annual adjustor for higher-than-programmed international financial assistance, including project support for projects initiated before the original program was approved, is capped at 1.8 percent of GDP.

18. The ceiling on the cash deficit of the general government is also subject to an automatic adjustor for local governments’ deficit financed with surpluses accumulated in 2008. Total annual adjustor for the deficits of local governments is capped at RBL 1.4 trillion.

D. Continuous Performance Criteria on Nonaccumulation of External Arrears

19. During the period of arrangement, the Republican government and the NBRB will not accumulate any new external payments arrears on debt service obligations to official creditors. Official external payment arrears are defined as unpaid debt service by the Republican government and the NBRB beyond 30 days after the due date. The performance criterion on nonaccumulation of external arrears is continuous.

E. Prior Action on Suspension of New Lending under Government Programs

20. The prior action on suspension of new government lending programs for 2009 will be deemed to be satisfied after the Presidium of the Council of Ministers makes a relevant decision confirmed by the minutes of its meeting.

II. Reporting Requirements

A. National Bank of the Republic of Belarus

21. The NBRB will provide to the IMF an aggregate balance sheet for the NBRB, as well as the monetary survey of the NBRB, banks and the banking system of the Republic of Belarus, on the 1st, 8th, 15th, and 22nd days of each month.

22. The NBRB will provide to the IMF on a weekly and monthly basis, no later than the 25th of the following month, the full breakdown of NBRB accounts included in net international reserves (defined in paragraph 4), at both actual and program exchange rates.

23. The NBRB will provide to the IMF, on a monthly basis, data on the amounts of disbursements and changes in the stocks of loans extended by banks under government programs, and a weighted average interest rate charged on these loans. Data on the stocks and disbursements of the loans in foreign exchange will be converted into rubel equivalent using current exchange rates on a reporting date and the date of transaction, respectively.

24. The NBRB will provide to the IMF, on a weekly basis, data on the stocks and flows of refinancing under standard facilities and the resolutions of the NBRB Board outside standard refinancing facilities, including interest rates charged on these loans and their maturity.

25. The NBRB will provide to the IMF on a weekly basis a data sheet on currency operations including government foreign receipts and payments, breakdown of interbank market operations by currencies, explanations for main currency flows. The NBRB will also provide daily information on exchange market transactions, including exchange rates.

26. The NBRB will provide to the IMF, on a monthly basis, a projection for external payments falling due in the next twelve months.

27. The NBRB will provide to the IMF, on a quarterly basis, the stock of external debt in the format of the IMF Debt Statistics Manual, Table 4.1. (http://www.imf.org/external/pubs/ft/eds/eng/guide/index.htm).

28. The NBRB will provide to the IMF, on a monthly basis, no later than 25 days after the end of the month, financial soundness indicators for the banking sector in an agreed format, as well as the level of compliance of bank performance with the indicative parameters of banking sector development set by the Republic of Belarus monetary policy guidelines.

29. The NBRB will provide to the IMF consolidated bank balance sheet and also information about assets subject to credit risk broken down on five groups of risk on a quarterly basis, no later than 30 days after the end of the quarter.

30. The NBRB will provide preliminary monthly balance of payments data in electronic format no later than 48 days after the end of the month.

31. The NBRB will inform IMF staff of any changes to reserve requirements for deposit money banks. The NBRB will communicate in writing to the IMF staff any changes in accounting conventions and valuation principles incorporated into the balance sheet data and will notify the staff before introducing any change to the Charts of Accounts of the NBRB and the Commercial Banks, as well as changes in the reporting forms.

B. Ministry of Finance

32. The Ministry of Finance will continue to provide to the IMF in electronic form monthly treasury reports, including revenue and expenditure figures of the consolidated Republican government budget and local budgets no later than 30 days after the end of the month. These reports will provide expenditure data by programs, and on standard functional and economic classifications. Data for local governments will be provided at similar frequency, but only on functional and economic classifications.

33. The Ministry of Finance will continue to report the final fiscal accounts at the end of each fiscal year, no later than March of the following year. These reports will provide expenditure data by programs, as well as based on standard functional and economic classifications.

34. The Ministry of Finance will report any revisions to monthly and annual fiscal reports of the Republican budget within a week after their approval.

35. The Ministry of Finance will continue to provide on its web site the weekly report on the primary treasury bill market, reports on each treasury bill auction, and provide to the IMF the monthly report on treasury bills.

36. The Ministry of Finance will inform IMF staff if the Treasury does not pay interest or principal on treasury bills due to the NBRB, deposit money banks, or nonbank entities and individuals. In such case, the Ministry of Finance will provide information on outstanding interest and principal payments.

37. The Ministry of Finance will provide available data on the stock of budgetary arrears on a monthly basis, no more than 30 days after the end of the month, including separate line items for wages, pensions and social benefits.

38. The Ministry of Finance will provide to the IMF in electronic format, no later than 30 days after the end of each month, monthly information on the amounts and terms of all external debt contracted or guaranteed by the general government.

39. The Ministry of Finance will provide to the IMF in electronic form on a monthly basis, no later than 30 days after the end of the month, (a) data on the outstanding stock of domestic and external debt of the Republican government; and (b) the standard files on planned and actual external debt disbursement, amortization, and interest payments. The Ministry of Finance will also report the accumulation of any budgetary arrears on external and domestic debt service.

40. The Ministry of Finance and the NBRB will provide data on external and domestic credit to nongovernmental units that is guaranteed by the Republican government or the NBRB on a monthly basis, no later than 30 days after the end of the month.

41. The Ministry of Finance will provide, no later than 30 days after the end of each quarter, quarterly data on the budgetary costs associated with the recapitalization of banks. This cost includes the upfront impact on the cash deficit of the Republican government of the recapitalization of banks as well as the costs associated with the payment of interests.

42. The Ministry of Finance will provide, no later than 30 days after the end of each quarter, quarterly data on the budgetary costs associated with sponsored loans under state programs, separately identifying the costs associated with subsidized loans extended below refinance rate, and the quarterly data on the amount of central and local government guarantees issued on bank loans.

43. The Ministry of Finance will provide monthly data on the export leasing agency to be created with government capital injection in 2009. The data include revenue and expenditures of the agency as well as its net deposits in the in banks and any net claims on liabilities.

1

This refers to the notional value of the commitments, not the market value.

2

As defined in paragraph 12 below.

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Cover IMF Staff Country Reports
Republic of Belarus: 2009 Article IV Consultation and Second Review Under the Stand-By Arrangement-Staff Report Informational Annex; Staff Statement; Public Information Notice on the Executive Board Discussion; and Press Release
Author:
International Monetary Fund
Volume/Issue:
Volume 2009: Issue 333
Publisher:
International Monetary Fund
ISBN:
9781451805321
ISSN:
1934-7685
Pages:
81
DOI:
https://doi.org/10.5089/9781451805321.002