Statement by the IMF Staff Representative on the Republic of Belarus

The staff report on Belarus’ Third Review under the Stand-By Arrangement is examined. Belarus is beginning to emerge from the crisis. Output loss has been limited relative to neighbors, inflation has fallen, the foreign exchange market has stabilized, and de-dollarization is under way, which is likely a sign of returning confidence. However, the economy remains vulnerable to external shocks. The current account deficit remains high and reserves low, despite substantial support, including from the IMF. The authorities have taken measures to close a financing gap during the program period created by a shortfall in external financing.

Abstract

The staff report on Belarus’ Third Review under the Stand-By Arrangement is examined. Belarus is beginning to emerge from the crisis. Output loss has been limited relative to neighbors, inflation has fallen, the foreign exchange market has stabilized, and de-dollarization is under way, which is likely a sign of returning confidence. However, the economy remains vulnerable to external shocks. The current account deficit remains high and reserves low, despite substantial support, including from the IMF. The authorities have taken measures to close a financing gap during the program period created by a shortfall in external financing.

December 18, 2009

1. This statement reports on key developments since the staff report was finalized. The new information does not alter the thrust of the staff appraisal.

2. The authorities continued to take measures in line with their Letter of Intent:

  • The draft 2010 budget consistent with program commitments, which was submitted to Parliament by the President on December 7, passed the second reading in the lower house, and is being considered by the upper house.

  • Belarus and the Russian Sberbank signed an agreement on December 11 to sell 93.27 percent of the shares of Belpromstroibank to Sberbank for $280.8 million.

3. The macroeconomic framework underpinning the program is reflected in the key documents guiding macroeconomic policies—the draft 2010 budget and monetary policy guidelines, but the 2010 Main Economic Indicators issued by the President on December 7 contains over-ambitious growth targets that are not consistent with the program projections.

4. It now appears certain that there will be a delay in the disbursement of some $290 million in macrofinancial assistance (MFA) from the EU, which was originally expected to be disbursed in the fourth quarter of 2009. There is also some risk that disbursement could slip until after the program period, in which case, according to the European Commission, it would become dependent on a new Fund arrangement being in place or there being a reasonable assurance that such an arrangement will be in place. The reason for the delay is a legal ruling in the EU that all requests for macrofinancial assistance must be considered by the new European Commission instead of the outgoing Commission, which will delay the Commission’s consideration of the MFA until at least January, following which the loan must be discussed and approved by the European Parliament. In light of this delay, the authorities have stated that they are prepared to implement measures that would reduce external financing needs by about $300 million over the full year of 2010. The measures could include reducing credit growth to the economy and some reduction in budgetary spending to offset lower revenue resulting from a tighter credit policy. The contingency measures, if needed, will be discussed and agreed with the staff during the fourth review. Implementation of such measures would ensure that program objectives continue to be met, although the quantitative targets for end-March 2010 may need to be modified since it would take some time for these measures to take effect. The authorities are also continuing to search for alternative sources of finance to offset any shortfall in EU financing and reduce the need for contingency measures

5. Recent economic data are consistent with the analysis in the staff report. GDP declined by 0.4 percent year-on-year in the first eleven months. Twelve–month CPI inflation fell further to 10.0 percent in November. The trade deficit in the first ten months reached $5.7 billion, higher than expected. However, NIR has increased recently and is now close to the adjusted end-December target level. Based on available data, the authorities are expected to be able to meet the revised end-December performance criteria. The outlook for 2010 is broadly unchanged from the projection in the staff report.

Republic of Belarus: Third Review Under the Stand-By Arrangement: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; Statement by the Executive Director
Author: International Monetary Fund