Republic of Belarus: Staff Report for the 2016 Article IV Consultation—Press Release; Staff Report; and Statement by the Executive Director for the Republic of Belarus

International Monetary Fund. European Dept.

doi:10.5089/9781475537185.002.A001

Author: International Monetary Fund. European Dept.

Publication Date:: 21 Sep 2016

eISBN:: 9781475537185

Language:: English

Keywords:: ISCR; CR; refinancing rate; rate; refinancing; Board of the NBRB; provision; staff appraisal; interest rate; bank FX liquidity buffer; broad money; transmission mechanism; FX liquidity risk

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This 2016 Article IV Consultation highlights that the economy of Belarus contracted by 3.9 percent in 2015, with a similar performance in the first half of 2016. The exchange rate depreciated sharply during 2015 and part of 2016. Real wages are down substantially relative to 2014, and corporate losses are up. Unemployment has risen somewhat, though it remains relatively low. The economy is expected to contract further in 2016 and in 2017, reflecting still-weak balance sheets and structural impediments. A subdued recovery is expected in 2018, but over the medium term, potential growth is expected to increase only to about 1.75 percent, limited by negative demographic developments and low productivity growth.

Abstract

Context

1. The economy is suffering from deep recession. External shocks, including low oil prices and the downturn in Russia, have exposed deep domestic structural problems, reflected in falling productivity (Box 1). Policies during 2015–16 have supported macroeconomic stability and have begun to address long-standing structural weaknesses discussed in past consultations (Annex I). But vulnerabilities are increasing faster, marked by rising public and external debt (Annex II), weakening corporate and bank balance sheets, and low reserves. Most senior officials agree that deep institutional and structural reforms are needed, but express concern about their social impact and about the government’s implementation capacity in areas such as SOE reform. Some official sector stakeholders believe that the recession is due to ’temporary’ external shocks and high interest rates and argue that the new 2016–20 Government Action Plan is sufficient to revive growth prospects.

2. Belarus has responded to past pressures with episodes of tight macroeconomic policies, with structural weaknesses left largely unaddressed. In response to past macroeconomic and financial pressures, the authorities tightened fiscal policy, restrained wages, allowed exchange rate adjustment, and took some structural measures—mainly in the financial sector as well as limited privatizations. But policies tended to relax after immediate pressures abated, and deeper-rooted vulnerabilities persisted. In addressing the most recent economic downturn, the authorities have undertaken more sustained stabilization efforts and demonstrated stronger ownership of reforms. These include initiation of some significant measures to address underlying vulnerabilities, though overall progress is still at an early stage and future reversals cannot be ruled out.

3. Belarus is seeking to deepen and diversify its external economic relations. Economic ties with Russia remain strong (Figure 1), including through membership in the Eurasian Economic Union (EEU), though disagreements over the pricing of energy imports from Russia are coloring these good relations and creating risks. Belarus is also seeking to strengthen other external economic linkages by leveraging its proximity to the European Union (EU) and growing ties with China. The EU recently lifted most sanctions on Belarus, unlocking potential loans from the European Bank for Restructuring and Development (EBRD) and European Investment Bank (EIB). Belarus is a key way station on the China-led new Silk Road, bringing additional financial and logistics resources to the economy. Belarus has revived WTO negotiations and intensified relations with International Financial Institutions (IFIs). The World Bank is considering a policy loan.

Recent Developments

4. The economy continues to contract (Figures2–4; Table 1A). Real GDP contracted by nearly 4 percent in 2015, with signs of similar decline in the first half of 2016. Headline inflation has slowed in recent months, but remains high relative to peers at 12.1 percent y-o-y as of end-June 2016 (text chart). Real wages are down and unemployment is rising amid corporate losses and weakening balance sheets. Negative macro-financial feedback loops are taking their toll, with implications for quasi-fiscal liabilities emanating from state-owned banks and the SOE sector.

5. The external sector remains fragile with diminished buffers. (Figure 5; Table 2). The Belarusian ruble (BYR) lost 36 percent of its value against the USD (28 percent against a trade weighted basket) in 2015, and a further 7½ percent against the USD through end-June 2016. The current account deficit narrowed to 3.8 percent of GDP in 2015, amidst sharp import compression and retention of energy export duties formerly repaid to Russia, but staff estimates the BYR remains up to 10 percent overvalued (Box 2). Gross official reserves (US$4.3 billion at end-June 2016) are well below standard adequacy metrics. Official reserves net of predetermined short-term net FX drains are negative (text chart), reflecting significant FX-denominated domestic and foreign debt. Further erosion in reserves has been avoided only by foreign exchange borrowing from Russia (US$0.8 billion) and the Eurasian Fund for Stabilization and Development (‘EFSD’, US$2 billion committed). Despite this, spreads on Belarusian 2018 Eurobonds have halved from 1,000 bps in mid-2015 to around 450 bps in July, roughly in line with similarly rated peers—reflecting a strong repayment track record as well as credibility gains from stronger policies.

6. The banking system faces significant challenges. (Text chart). Capital adequacy ratios are falling and non-performing loans (NPLs) are rising. NPLs are likely underestimated given regulatory forbearance, evergreening, and diminished real sector repayment capacity, particularly among SOEs. Bank profitability is being squeezed. Deposits have stabilized after a period of erosion that was likely driven by depreciation and consumption smoothing. Banks also face significant challenges adjusting to cuts in government directed lending and guarantees. Given the significant state presence in the banking sector (state-owned banks account for about 65 percent of the banking system assets), any needed recapitalization relating to the state bank-SOE nexus has implications for the budget.

Outlook and Risks

7. Belarus’s near-term macroeconomic outlook is further contraction and persistent elevated inflation (Box 3).

Growth is expected to remain negative this year (-3.0 percent) and next (-0.5 percent) under staff’s baseline (partial adjustment) scenario, with a subdued recovery beginning in 2018 (+0.5 percent). Recovery will lag that in Russia given weaker balance sheets and structural impediments in Belarus. Real GDP will gradually rise to a potential growth rate of slightly above 1¾ percent, taking into account TFP trends and negative demographics. Under staff’s adjustment scenario, deeper and faster reforms would initially push growth lower, mainly due to lower domestic demand, but productivity gains and rising domestic demand would then drive growth up to 4½ percent during 2020–21 before settling into a 3½ percent long-term potential growth rate.
Inflation is expected to reach 13 percent y-o-y by end-December—almost 1 percentage point higher than last year—driven mainly by recent exchange rate depreciation and higher utility tariffs. Inflation is projected to remain in the low double digits over the next three years under the baseline scenario. Better policy implementation under the adjustment scenario would bring inflation down to around 6 percent by 2020.
The current account deficit is projected to widen by about 1 percent of GDP this year and then narrow gradually in the medium term to 3-3½ percent under the baseline scenario. Under the adjustment scenario, the current account deficit would significantly narrow to around ½ percent of GDP by 2021, with higher reserve build-up. This reflects significant reforms, including to SOEs, that could sustainably lower import demand and promote higher FDI and other capital inflows.

8. Risks are tilted to the downside (Risk Assessment Matrix, Annex III). Belarus is prone to external and domestic shocks and swings in confidence that macro-financial linkages could propagate into crisis. Lower (higher) energy prices would erode (boost) growth and external stability. Current energy price disagreements with Russia, if not resolved, could disrupt external and domestic stability. In the event of significant renewed depreciation, corporate and bank balance sheets and household (HH) confidence would weaken owing to high dollarization, currency mismatches, limited access to foreign exchange liquidity, and significant annual gross external financing requirements in the range of US$18 billion (35 percent of GDP). Risks to balance sheets would be heightened in the event of slippages in domestic policy implementation. Quasi-fiscal liabilities are particularly uncertain and could be higher (or lower) than estimated.

Authorities’ Views

9. The authorities noted that external conditions have recently improved and their stabilization and structural reform policies are bearing fruit. They expect the economic contraction to ease more rapidly in 2016—with some in government expecting a return to growth— and inflation to fall by more relative to staffs baseline projections. They pointed to a number of important recent reforms, including the shift to a flexible exchange rate regime, price liberalization, and some SOE reforms.

10. The authorities are more upbeat about medium-term economic prospects. They expect much higher medium-term growth in the range of 5 to 6 percent. The authorities expressed greater optimism about reform implementation and anticipated higher investment than under staff’s baseline scenario. They expect stronger external sector performance, helped by expected lower energy import prices from Russia but also higher foreign direct investment and strengthened competitiveness. They noted the challenges (and benefits) of increased competition from globalization, and remain firmly committed to both deeper external economic ties as well as to policies consistent with maintaining social stability. They broadly agreed with the range of risks identified by staff, but see their policies, taken together, as significantly contributing to risk mitigation. They expect quick resolution of the energy pricing issue with Russia and view the risk of persistently lower oil prices as somewhat less likely. They see lower risks from the SOE sector, having provided substantial support to SOEs in 2015 and taken some measures to improve SOE soundness.

Policy Discussions

11. Discussions covered the macroeconomic, financial, and structural policies needed to support stability, reduce vulnerabilities, and strengthen economic growth and income prospects. Staff recognized that some important stabilization and reform measures have already been taken, but urged additional front-loaded and deeper structural measures to: (i) mitigate significant and rising risks to sovereign, financial sector, and external stability; (ii) achieve higher sustainable levels of medium-term growth and income; and (iii) provide well-funded and targeted SSNs to mitigate the impact of reforms.

A. Structural Reforms: Unlocking More Market-Oriented Growth Potential

12. Government-dominated economic activity is increasingly inefficient, creating a drag on growth. Overall productivity is down and many corporates, including SOEs, are now generating substantial losses (text chart). Various forms of state support and involvement distort economic activity or create an uneven playing field for the private sector. Examples include implicit production targets for some SOEs (the state accounts for around 50 percent of employment and gross value added in the economy), lingering price controls, and subsidized government directed lending. Directed lending accounts for almost 40 percent of all loans, largely FX-denominated investment loans from state-owned banks to unhedged SOEs that have broadly fallen short of generating intended improvements in productivity and competitiveness. Such lending has also hindered the development of bank risk assessment capacity.

13. The authorities are developing a comprehensive SOE strategy, and have begun implementing some important SOE diagnostics and reforms. During 2015–16, a government working group assessed repayment capacity of SOEs with the largest FX-denominated liabilities, and provided guidance on where restructuring or insolvency could be needed. Relatedly, the government has initiated a phased reduction in directed lending. More recently, the authorities have been compiling a comprehensive inventory of SOEs with key financial and employment indicators, and published their first SOE monitoring report. They have taken steps to strengthen SOE governance, including a recent decree that separates regulatory oversight and ownership and establishes independent supervisory boards. Another recent decree has replaced production targets with objectives of profitability, efficiency, and export competitiveness, though there is evidence that some SOEs are still receiving production target instructions from line ministries. The authorities report that some small SOEs are being prepared for privatization. Looking ahead, they hope to attract minority-stake strategic investors for large SOEs, and pursue a mixture of ongoing operations, restructuring, insolvency, and privatization for other SOEs. In terms of tangible results, employment in larger SOEs has fallen about 12 percent over the past two years, but few SOEs have entered insolvency or been privatized.

14. Some other important real sector reforms are also underway:

Price liberalization. Price controls were reduced from 28 to 18 percent of the CPI basket, down from 49 percent in 2011. Price ceiling controls remain on pharmaceuticals and some staples, as well as a price floor on vodka.
Rationalization of HH utility tariffs. (Box 4). HH utility tariff increases in early 2016 raised utility cost recovery by an average of nearly 10 percentage points, reaching about 58 percent. The authorities are not planning further HH tariff hikes this year, but have committed to a mix of tariff hikes and cost reduction (particularly in the heating sector) to achieve 75 percent cost recovery in 2017 and 100 percent cost recovery by 2018. However, at present the authorities’ plans lack sufficient detail to be credible—particularly with respect to expected cost reductions. They plan to launch a better-targeted social support mechanism this year to help offset the impact tariff hikes on HHs.
Improvements in the business climate. (Figure 6). The authorities have achieved some progress in Doing Business indicators, having reduced administrative and licensing procedures for businesses and simplified startup, tax administration, and ownership registration procedures. Progress has also been made in reducing the tax burden on businesses. The government recently expanded the mandate of the Trade Ministry to include antimonopoly enforcement (aiming to ensure a more competitive environment where needed).

Staff Recommendations

15. Staff encouraged the authorities to accelerate and deepen structural reforms. Staff argued that more comprehensive, deeper, and faster reforms are needed to improve resource allocation and competitiveness, to reduce fiscal, banking, and external risks, and to support higher sustainable growth.

Deeper SOE reform. The mission supported plans for a comprehensive SOE strategy, while stressing the overarching goal of greater market orientation and efficiency. Drawing on recent FAD TA, staff urged the authorities to: (i) establish a fiscal risk monitoring unit tasked to carry out a comprehensive review of fiscal risks emanating from the SOE sector on an ongoing basis; (ii) undertake an in depth inventory of SOEs to determine which carry out commercial as opposed to government functions; (iii) incorporate all commercial enterprises; (iv) implement legislation requiring all key SOEs to adopt International Financial Reporting Standards (IFRS); (v) further strengthen SOE corporate governance, including by implementing the policy to separate ownership and regulatory functions through centralizing ownership in a single coordinating entity and strengthening the independence and capacities of SOE boards; and (vi) enhance and strengthen the framework for restructuring SOEs, including by developing clear insolvency and privatization criteria and procedures. The mission also urged close coordination of SOE restructuring with financial sector reforms, notably treatment of bad loans, and stronger SSNs.
Rationalization of the utility sector. Staff supported the authorities’ plans to improve utility cost efficiency, but noted that further significant HH tariff hikes are unavoidable to achieve the government’s objective of 100 percent cost recovery by 2018. Staff urged adoption of clear, time-bound measures with contingencies should cost reduction efforts fall short. Increases in cost recovery levels should be matched by pro rata reductions in budget and industry cross-subsidies, coupled with better funded and well-targeted SSNs to protect the most vulnerable. The cost recovery program should also include a clear framework to take into account changes in international gas prices and exchange rates. Once full cost recovery is reached, a clear mechanism for maintaining full cost recovery should be employed.
Strengthening competition policies and the business climate. Staff supported the objectives of the new antimonopoly agency, and urged a close look at product market liberalization, including in SOE-dominated sectors such as transportation and agriculture. Staff also urged prioritizing WTO accession negotiations, which could provide a key anchor for structural reforms.

Authorities’ Views

16. The authorities agreed on the need for further structural reforms, but are still considering the most effective path forward. They are now assessing the findings of the recent IMF TA mission on SOE reform and recommendations from other international partners, aiming to develop a robust SOE reform strategy by 4Q2016. They expressed some concern about implementation capacity and how to best strengthen some key elements of the reform process such as the insolvency process and bad asset management. However, the authorities believe that with their current work plan and further effort to build technical capacity, they will successfully implement a far-reaching restructuring of the SOE sector consistent with greater market orientation and efficiency. Regarding utilities, they noted that firmly addressing inefficiencies and lowering costs were important to help build public support for needed utility tariff hikes, and expressed strong commitment to meet their cost recovery objectives. They agreed that implementing a rules-based utility tariff adjustment mechanism was an important medium-term goal. The authorities also agreed on the importance of WTO membership, including as a driver of reform, but expressed concern that they would be asked to accept less favorable terms than Belarus’s EEU partners. They also noted potential benefits from EEU member plans to further harmonize regulatory standards over time.

B. Fiscal Policy: Strengthening and Recalibrating

17. Public debt sustainability risks are rising, despite headline fiscal surpluses. Public debt—including public guaranteed debt (PPG)—has increased significantly from below 40 percent of GDP in 2013 to nearly 54 percent in 2015 (Figure 7; Table 3), owing to sharp depreciation and quasi-fiscal operations, including recapitalizations and called guarantees.¹ Debt is expected to reach nearly 70 percent of GDP in 2021 as quasi-fiscal liabilities are realized.

18. The authorities have tightened fiscal policy and revamped their fiscal framework. Key steps taken by the government in response to deteriorating revenues, external pressures, and mounting debt include:

Tightening the 2016 budget. Export taxes were increased on potash, oil, and fuel. Excise and property taxes were increased and tax expenditure efficiency was enhanced by elimination of preferential VAT tax treatment for transportation and telecommunication sectors. Budget expenditures have been cut, mainly through compression of capital spending and a freeze in real public sector wages that has partially unwound rapid increases in recent years (and helped ease wage pressures in the non-government sector—see text chart). The authorities are also reducing off-balance sheet directed lending. The authorities continue to hold earmarked funds in reserve for strengthened SSNs, including for unemployment benefits and a better-targeted social support mechanism to mitigate HH utility tariff adjustments. The overall fiscal stance is somewhat looser this year, but is expected to tighten next year (text chart).
Updating the fiscal framework. The authorities aim to implement a 3-year budgeting process with strengthened accountability, beginning with the 2017 budget cycle. They have also set up a somewhat complex web of fiscal objectives: (i) a general government balanced-budget—but excluding a new nuclear power plant (NPP) project costing close to 18 percent of GDP over roughly 7 years, financed by Russia; (ii) a medium-term public debt ceiling target of 45 percent of GDP (including the NPP, but excluding guarantees and local government debt); (iii) a prohibition on new issuance of government guarantees (excluding IFIs); (iv) a medium-term objective to maintain state tax revenues below 26 percent of GDP, which they view as more consistent with peer countries; and (v) reduction of the ratio of FX-denominated public debt service-to-reserves to 45 percent by 2020. These changes follow important tax reforms in recent years, including a unified tax code and harmonization with IFRS.
Reforming the pension system and embarking on other medium-term plans. The authorities recently approved an important parametric pension reform—a gradual increase in retirement ages beginning January 2017—and reindexed pension income to inflation rather than wages (Box 5). Staff expects these measures to broadly maintain fiscal balance of the pension system through 2022. The authorities are also planning further reductions in tax expenditures, drawing on FAD TA, and steps to increase efficiency in goods and service expenditures.

Staff Recommendations

19. Staff urged additional steps to reduce vulnerabilities and support reforms and growth.

Strengthen the debt anchor. Staff supported the debt anchor, but recommended that it be more broadly defined to include guarantees and local government debt. Staff noted that an even lower debt threshold would be advisable given significant risks identified in the public DSA, including a history of large macro-fiscal shocks (text chart), but acknowledged a cushion from significant government cash deposits.
Further strengthen the fiscal framework. Staff supported adoption of medium-term budgeting. To complement the debt anchor, staff urged a more explicit adjustment rule, preferably an expenditure rule based on a broader budget definition (while also looking to simplify the overall set of objectives to enhance communication and credibility). Staff also urged more transparency, including identification and regular monitoring of fiscal risks, explicit recognition of quasi-fiscal liabilities, and bringing all forms of quasi-fiscal government support to the economy on budget. Staff estimates that unrecognized quasi-fiscal liabilities are around 15½ percent of GDP, though this estimate is subject to significant uncertainty. Staff expects to refine these estimates using results from the ongoing bank AQR exercise, and as better SOE performance information becomes available. Staff also pressed the authorities to undertake recapitalization of the central bank (3 percent of GDP) in line with MCM TA.
Near-term easing, medium-term consolidation. Some near-term fiscal easing is warranted given recession and a negative output gap, but should be followed by cyclically adjusted fiscal consolidation of about 0.5 percent of GDP annually over the next five years (based on well-specified measures), versus the baseline. With a low fiscal multiplier (about 0.1–0.3 in the first year)², the modest growth impact of the proposed medium-term adjustment can be more than offset by growth enhancing structural reforms. Such measures would bring PPG debt (including NPP) around 55 percent of GDP by 2021, and below the 45 percent target level by 2025.
Additional revenue and expenditure measures. Given sustainability concerns, staff recommended that debt reduction be given priority over the aggregate tax revenue burden. Staff recommended low-growth-impact revenue measures, focusing on reducing tax expenditures and if possible, lowering the comparatively high rate of social security contributions (SSCs)—see text chart. Other possible revenue measures are shown in the text table. On the expenditure side, a sustained effort to limit real public wage growth would provide both fiscal and competitiveness benefits. Capital expenditures should be protected.
Additional pension reform: Staff welcomed the authorities’ efforts to reform the pension system. However, staff urged the authorities to: (i) continue reforms to close the pension gap after 2022; (ii) take additional measures to free up fiscal space to lower the burdensome social contribution rate (35 percent); and (iii) take complementary steps to enhance labor participation.

Total Fiscal Adjustment, 2016-2021 Adjustment vs Baseline

(share of GDP)

Source: IMF staff estimate

^{^1/}‘+’ results in higher budget balance, and lower debt.

Total Fiscal Adjustment, 2016-2021 Adjustment vs Baseline

(share of GDP)

Measures	Budget Savings ^1/
Revenue measures	3.3
Broaden tax base, including reduction of exemptions and removal of preferential regimes	1.3
Higher SOE dividends and SPF contributions, due to SOE reforms	2.0
Primary expenditure measures (excluding NPP)	−0.5
of which:
Reduce expenditure on goods, services, and non-pension related social spending.	1.3
Higher unemployment benefits	−0.7
Higher in capital expenditures	−1.1
Lower off-balance sheet operations	1.5
Lower directed lending	0.1
Government guarantees	10.9
Zero new gross issuance	10.9
Total	15.3

Source: IMF staff estimate

^{^1/}‘+’ results in higher budget balance, and lower debt.

Total Fiscal Adjustment, 2016-2021 Adjustment vs Baseline

(share of GDP)

Measures	Budget Savings ^1/
Revenue measures	3.3
Broaden tax base, including reduction of exemptions and removal of preferential regimes	1.3
Higher SOE dividends and SPF contributions, due to SOE reforms	2.0
Primary expenditure measures (excluding NPP)	−0.5
of which:
Reduce expenditure on goods, services, and non-pension related social spending.	1.3
Higher unemployment benefits	−0.7
Higher in capital expenditures	−1.1
Lower off-balance sheet operations	1.5
Lower directed lending	0.1
Government guarantees	10.9
Zero new gross issuance	10.9
Total	15.3

Source: IMF staff estimate

^{^1/}‘+’ results in higher budget balance, and lower debt.

Authorities’ Views

20. The authorities viewed their efforts to tighten the fiscal stance in 2016 as sufficient, and were noncommittal regarding additional consolidation measures. They expressed concern about the rapidly increasing debt level, but highlighted that they have adopted several measures to bring debt down to the target level. They plan to include local government debt in their debt target and to reduce issuance of domestic FX-denominated bonds. Regarding realization of quasi-fiscal liabilities, the authorities noted a lack of fiscal resources. They argued that budget resources for SOE and banking sector should not be provided ahead of more fundamental reforms and further clarity about the size of the problem, and that central bank recapitalization could be achieved more gradually. Regarding possible future fiscal measures, they noted that they do not see space to raise property taxes, and that further increases in excise taxes should depend on profitability of companies in the relevant sectors. With respect to pension reform, the authorities stressed the importance of maintaining a fiscally balanced system, and are committed to making additional modifications as needed to achieve this. They did not see room to lower the SSC rate at this time.

C. Monetary and Exchange Rate Policy: Maintaining Stability

21. The authorities have strengthened the monetary and exchange rate policy framework. In 2015, the central bank (NBRB) replaced its crawling peg with a de jure managed floating exchange rate regime and money aggregate targeting. The authorities established broad money as the nominal target, and BYR base money as the operational target. Interventions in the foreign exchange market are broadly rules-based, guided by a wide crawling band allowing smoothing and opportunistic build-up of reserves. The authorities’ medium-term objectives are to: (i) reduce inflation to 5 percent by 2020; (ii) rebuild reserves to a ’safe’ level of US$10 billion (roughly 100 percent of the Fund’s ARA RAM metric); and (iii) gradually transition to inflation targeting. In July 2016, the authorities redenominated the currency to help boost confidence, issuing new bills (“BYN”) that dropped four zeros.³ A staff assessment concluded that Belarus has eliminated all previously identified multiple currency practices (MCPs) and exchange restrictions subject to IMF jurisdiction under Article VIII.⁴

22. Monetary policy has been tight in 2015–16 (Figure 8; Table 4). Monetary aggregate growth has been contained at levels broadly consistent with the authorities’ inflation objective for 2016 of 12 percent (while excess liquidity and credibility gains have allowed some reduction in the interest rate corridor). The reserve requirement has been used as an instrument to address structural liquidity in the banking system as well as the dynamics of money supply. Over the past two years, the NBRB lowered overall reserve requirements and unified the rate on domestic and foreign currency deposits at 7.5 percent.

23. Domestic credit growth remains subdued, despite excess domestic currency liquidity in the system and lower interest rates. This reflects both supply and demand factors: banks remain risk averse given rising NPLs while corporate and HH balance sheets and incomes are weakened and face dim near-term market prospects. These factors, combined with high dollarization and the significant share of government directed lending have contributed to a weak interest rate transmission mechanism. The authorities expect the ongoing reduction in directed lending will help address this, but have also introduced prudential limits on lending and deposit rates to guide the yield curve and help reset market premia more in line with gains in credibility (Annex IV).

Staff Recommendations

24. Staff urged the NBRB to maintain its focus on lowering inflation, while safeguarding external and financial stability. The NBRB’s monetary policy stance (aggregate money growth target) for 2016 looks broadly appropriate, though further efforts (including structural reforms and steps to enhance central bank credibility) will be needed to bring medium-term inflation down in line with objectives. With respect to the recently imposed prudential limits on interest rates, the mission urged the NBRB to: (i) undertake an impact assessment of the measures, including their impact on new lending and on depositor behavior; (ii) treat these measures as temporary; and (iii) rely primarily on macroeconomic stabilization and progress in reducing vulnerabilities in the real and financial sector balance sheets to bring down market interest rates. The mission advised the NBRB to stand ready to tighten money aggregates if imbalances and financial sector pressures re-emerge.

25. To further enhance monetary policy effectiveness, staff recommended strengthening NBRB operations and operational independence. Staff urged the authorities to: (i) amend the NBRB statute to clarify the primacy of price stability; (ii) recapitalize the NBRB; (iii) strengthen communications; and (iv) propose a transition timeline to an interest rate-based operational target and then inflation targeting.

26. Staff recommended that the authorities maintain exchange rate flexibility while seeking opportunities to rebuild reserves. The flexible exchange rate remains an important shock absorber, and interventions should remain limited to smoothing volatility and rebuilding reserves to more adequate levels as conditions allow. Given balance-sheet vulnerabilities, the authorities were advised to facilitate real exchange rate adjustment (and promote export competitiveness) through structural reforms.

Authorities’ Views

27. The NBRB broadly agreed with staff views on monetary policy. The central bank considers the current tight monetary policy stance as appropriate for reducing inflation. The NBRB noted it has been building credibility through firm implementation of the money aggregate target framework. The authorities view a stronger interest rate transmission mechanism as a prerequisite for adopting the policy rate as the operational target, and for the eventual adoption of an inflation targeting regime. The NBRB noted that its operational independence is sufficiently ensured by the Banking Code, combined with provisions on its independence from other ministries and well-specified issues on which the NBRB reports to the Presidential Administration. In addition, draft amendments to the NBRB statute are being prepared which will clarify price stability as one of the main objectives.

28. The authorities agreed on the importance of maintaining a more flexible exchange rate regime, while aiming to rebuild external buffers. They emphasized that the exchange rate is market-determined with rules-based FX interventions limited to smoothing excessive volatility or to maintain financial stability in the face of sharp exchange rate depreciation. The authorities broadly agreed with staff’s assessment of reserve adequacy. They are aiming for a steady buildup of reserves over the medium term, though some counterparts noted that reliance on further external borrowing to rebuild buffers would carry risks of its own. The authorities felt that the exchange rate had settled to a level broadly consistent with fundamentals or even overshot, noting that the real exchange rate was below its historical average. They saw current account deficits of 2 percent of GDP or below being financeable by FDI inflows, which had historically averaged similar levels. The authorities agreed with the emphasis on structural reforms to deliver external adjustment, noting that high dollarization added to the costs of any further significant depreciation.

D. Financial Sector: Bolstering Stability and Market-Based Lending

29. The financial sector is severely strained. (Figure 9; Table 5). The recent FSAP assessment highlighted concerns about credit and FX liquidity risks, and financial stability frameworks (Box 6). Credit risk is being reflected in increasing NPLs while provisioning rates remain low. Deposit outflow has slowed, but deposits remain well below their 3Q2015 peaks. Banks’ net open foreign currency positions are within tight prudential requirements, though FX liquidity coverage ratios are low (reflecting mismatches in short-term assets and liabilities for some currencies). Recently introduced measures to distinguish between revocable and irrevocable deposits are steps in the right direction.

30. The authorities are taking some important steps to reduce financial sector vulnerabilities. In 2015, they closed four small banks, removed 1.5 percent of GDP in bad assets from state-owned bank balance sheets, and established a Financial Stability Department in the NBRB to monitor macro-financial linkages and risks. They also held the first meeting of the recently established the Financial Stability Council and engaged the EBRD to help divest two state-owned banks. In 1H2016, the NBRB initiated Independent Diagnostics Studies (“AQRs”) of the top 9 banks.

Staff Recommendations

31. Staff stressed the urgency of implementing further measures to bolster financial stability and strengthen market-based intermediation. Staff urged follow-up on key FSAP recommendations, in particular to:

Strengthen bank financial resilience. There is an urgent need to transition to an independent and risk-based oversight of the financial sector. A well-functioning financial safety net should be put in place. Bank FX liquidity buffers should be enhanced, including through a gradual increase in the FX component of reserve requirements on foreign currency deposits. An enhanced set of macroprudential policies could help contain FX liquidity risk from dollarization. Once the results of the AQR are known (expected in 3Q2016), the authorities should firmly address any needed recapitalization and restructuring of banks.
Strengthen the NPL resolution framework. Staff emphasized that the framework should be comprehensive and well-coordinated with SOE reforms and cuts in directed lending. Designating a single entity for bad asset management, possibly paired with a lead role in SOE restructuring, would better mitigate fiscal risks compared to more piece-meal approaches. Staff recommended that the framework include appropriate valuation of assets and a broad range of instruments-including privatization, P&A, and out-of-court settlements—that allow for permanent solutions.
Maintain a limited, well-targeted role for the Development Bank (DB). Staff recommended that DB operations be limited to areas not adequately addressed by commercial banks, such as longer-term SME lending and export-import financing on terms consistent with international obligations and best practice. The mission suggested that further consideration be given to the mandate of the DB, consulting with international partners, targeting areas of market failure and consistent with priority government policies. It could also include financing of infrastructure investment. Staff urged that the prohibition on retail deposits remain in place. The mission noted that DB operations could also include government-directed lending, so long as it is consistent with overall phase down planned by the government.

Authorities’ Views

32. The authorities expressed their commitment to implement the recommendations of the FSAP mission. They agreed with the key areas of importance highlighted in the FSAP report and plan to develop an implementation road map. However, they expressed concern about the recommended approach to improve foreign exchange liquidity buffers, specifically the proposed distinction of reserve requirements for local and foreign currency deposits (with a higher requirement for the latter), given implications for the current setup of monetary policy operations. They noted that the distinction between revocable and irrevocable deposits introduced from April 2016 has contributed to improving banks’ funding bases. The authorities plan to continue efforts to de-dollarize the economy. They highlighted recent progress in addressing NPLs, including the imminent launch of an asset management company (AMC) to restructure bad bank assets as a part of overall rehabilitation plan for the agricultural sector. If successful, the authorities indicated the AMC could take on bad assets from other sectors. The authorities see a prominent role for the DB in export financing, SME loans, and infrastructure investment financing, given their assessment of market failures in those areas. They stressed that SME lending by the DB is conducted under a WB-designed program or done with similar principles on market terms, and are important for enhancing the share of private sector in the economy. The authorities noted that the provision of export financing is in line with OECD rules.

Staff Appraisal

33. The authorities have taken some welcome steps to support stabilization and reduce vulnerabilities, but more is needed. Faster and deeper progress on the reform agenda, particularly in the closely linked SOE and financial sectors, is needed to reduce macro financial vulnerabilities and raise growth prospects. Specific SOE sector measures should include developing and implementing a comprehensive SOE reform strategy that strengthens monitoring and diagnostics, phases out production targets, scales down government directed lending, and strengthens corporate governance. More specific time-bound measures are needed to achieve full utility tariff cost recovery by the end of 2018. Further steps should be taken to strengthen the business environment, including through stronger competition policies and seeking WTO membership.

34. Fiscal policy should be further strengthened and recalibrated. In the near-term, fiscal policies should prioritize well-targeted social safety nets and support for structural reforms (including SOE reform and recognition of contingent liabilities from quasi-fiscal activities). Over 2017-21, fiscal consolidation averaging about 0.5 percentage points of GDP per year is recommended (including through wage restraint) to bring debt down to target levels over the longer term while also providing resources for spending priorities (e.g., capital expenditures). The fiscal framework should be strengthened by: (i) including government guarantees in the debt limit; (ii) adding an explicit fiscal expenditure adjustment rule to achieve debt targets; and (iii) increasing transparency and identification of risks in the budgetary process, including by bringing quasi-fiscal items such as directed lending subsidies on budget.

35. The current monetary policy stance is appropriate. The NBRB’s aggregate money growth target for 2016 is consistent with inflation objectives. The recent lowering of the policy rate corridor is consistent with both re-pricing of the risk premium—given credibility gains by the NBRB—and with recent liquidity and inflation developments, amid tight credit to the economy. Prudential measures aimed at lowering lending and deposit interest rates should be temporary, and should not be enhanced in the near term until further assessment is made of the impact of these measures on inflation pressures and the financial sector, including depositor behavior. To further strengthen NBRB credibility and facilitate a transition to inflation targeting, the NBRB’s operational capacity and independence should be strengthened. Staff welcomes the elimination of the previously identified multiple currency practices and exchange restrictions.

36. External stability should be reinforced by structural reforms and rebuilding buffers. Maintaining exchange rate flexibility remains important as a shock absorber, with interventions limited to smoothing volatility and rebuilding reserves as conditions allow. Given balance-sheet vulnerabilities, the authorities should promote export competitiveness through structural reforms. Pay down of public FX-denominated domestic bonds is desirable in the medium term to reduce FX exposure and support de-dollarization, but will need to be gradual in order to protect the fragile reserve position. Gradually strengthening bank reserve requirements on FX deposits is appropriate for building better bank FX buffers.

37. To strengthen financial stability and facilitate more market-based intermediation, the main findings of the FSAP should be implemented. It is critical to transition to an independent and risk-based oversight of the financial sector. Other important areas include: (i) strengthening bank financial resilience, including by completing AQRs and increasing FX liquidity buffers; (ii) designing a holistic and in-depth NPL resolution strategy alongside corporate restructuring and phasing out directed lending; (iii) designing a well-functioning financial safety net; (iv) strengthening macro prudential policies to contain FX liquidity risks from dollarization; and (v) maintaining a limited, well-targeted role for the Development Bank, with operations primarily focused on areas not adequately addressed by commercial banks.

38. It is proposed that the next Article IV consultation be held on the standard 12-month cycle.

Box 1.

Belarus: From Extensive to Intensive Growth

Past real GDP growth has been based on factor accumulation, with very high investment. Between 1995 and 2008, growth was rapid, driven by very high investment However, high growth was not sustainable or effective—neither from a macro-perspective (it led to high current account deficits), nor from a micro-perspective (the sharp expansion of the capital stock was increasingly offset by falling efficiency levels). A change towards more intensive growth is needed with a much larger role for efficiency increases. More reliance on market mechanisms would help in this, and would address both macro and micro problems.

Lessons from early transition suggest that waiting with reforms may not lessen the pain. In the early 1990s, economists debated whether transition to a greater market orientation should be gradual or rapid. The main concern about more rapid reforms was that it would lead to high unemployment. Some countries (Czech Republic, Poland, Baltic countries) opted for rapid reforms, while others (CIS countries, Bulgaria, Romania) reformed more gradually. In the event, rapid liberalizers had shallower recessions and stronger long-term growth. Slower liberalization did not moderate the pain—it exacerbated it.

Box 2.

Belarus: External Stability Assessment

Belarus’s external position is fragile in the wake of external shocks and deep recession.

Gross international reserves (GIR) ($4.3 billion at end-June 2016) are equivalent to about (30) 40 percent of the ARA metric for (fixed) floating exchange-rate countries—well below most adequacy thresholds and below predetermined short-term net FX drains ($5.9 billion). The authorities see GIR of around $10 billion (100 percent of ARA metric for floating exchange rates) as adequate. The level of reserves stabilized following the central bank’s shift to a more flexible exchange rate regime.

The net international investment position (NIIP) reached -82 percent of GDP at end-March 2016. NIIP remained unchanged in dollar terms during 2015, but deteriorated by 20 percentage points of GDP owing to exchange rate depreciation and recession.

The current account deficit (CAD), historically volatile, has narrowed from 10 percent of GDP in 2013 to 3.8 percent in 2015. Import compression has offset weak exports and the negative impact from low oil prices—which contribute to negative spillovers from Russia and erode comparative benefits from energy imports from Russia that are priced below world price levels.

EBA-Lite methodologies indicate a real overvaluation of up to 10 percent, still significant but below previously reported estimates. The two approaches for Belarus show the CAD remaining above estimated norms:

External sustainability approach. Under baseline growth prospects, a current account (CA) norm of −0.2 percent of GDP would be needed to stabilize the NIIP at −60 percent of GDP by 2035. This compares with an underlying CA of −3¼ percent of GDP (baseline projection). Applying CGER elasticities to the resulting CA gap of 3.1 percent of GDP implies a REER gap of 8 percent.

CA approach. This approach estimates a CA norm of -0.1 percent of GDP (versus 2015 CA of -3.8 percent of GDP) based on a regression-based “fitted” value (-0.3 percent) and a policy gap (-0.2 percent) derived by: (a) making room for an annual increase in reserves of about $1 billion; and (b) setting other policy variables to their actual 2015 values. Under the resulting CA gap of 3.7 percentage points of GDP, CGER elasticities imply a REER gap of 10 percent.

Box 3.

Belarus: Baseline and Adjustment Scenarios, 2016–21

In 2016, the Belarusian economy is projected to contract by 3 (3½) percent under staff’s baseline (adjustment) scenario, as domestic demand falls. (Figures 10 and 11). Inflation is expected to rise, reflecting depreciation and seasonal factors.

Under staff’s baseline scenario, medium-term growth will remain tepid, with rising vulnerabilities. Output will bottom out next year. Reforms being undertaken by the authorities support a small upward revision of medium-term potential growth, to around 1¾, compared to the 2015 Article IV estimate. Inflation will remain in double digits through 2018 as remaining administrative regulation of the economy and energy cross-subsidies continue to distort prices. Constraining factors include limited financing, weak terms of trade, negative demographics, structural impediments, weak bank and corporate balance sheets, uncertainty surrounding high macroeconomic vulnerabilities, muted growth prospects in key trading partners, and insufficient resources to repeat investment-led domestic demand increases of past years. The public sector will continue to rely on placement of FX-denominated paper with banks.

Under the adjustment scenario, real GDP growth will initially be weaker than under the baseline scenario, but will then rebound to relatively higher levels. During 2016–17, consumption and investment will be weaker as directed lending slows and real wages fall (though cushioned by enhanced SSNs). This will be partially mitigated by an improving trade balance— from import compression and some REER depreciation. Inflation is expected to remain in double digits in 2016–17 due to utility tariffs hikes, price liberalization, and further depreciation. Over the medium-term, growth is expected to rise to slightly above 4½ percent, before settling into a longer term potential growth rate of around 3½ percent. Macroeconomic adjustment, positive effects of structural reforms—including SOE and bank reforms to increase market orientation and more market-based pricing—, and stronger corporate and bank balance sheets will create conditions for increased competitiveness and sustainable higher growth. Total factor productivity will rise, accompanied by more efficient resource allocation, higher quality investment, and increased labor participation (from pension and other reforms). Competition policies, easier access to credit, and private enterprise expansion in sectors such as agriculture, utilities, banking, transportation, and healthcare—which have been traditionally dominated by the state—would further support private sector development. Modernization, FDI, and trade liberalization (including WTO accession) would allow export diversification away from commodity-dependent goods and markets. Inflation will fall to about 6 percent, sustained by market-based price setting and appropriate monetary policy.

Box 4.

Belarus: Utility Tariffs and Cost Recovery

Household (HH) utility tariffs in Belarus remain below full cost-recovery levels and lower than in regional peers. Below-cost pricing for HH utility services weighs on public and external balances, encourages overconsumption and underinvestment in efficiency-enhancing measures, and undermines competitiveness of industries that cross-subsidize HHs by paying above cost prices.

Belarus: Cost Recovery of Household Tariffs, 2015

(in percent)

Sources: Belarusian and Ukrainian authorities; and IMF staff calculations.

Belarus: Cost Recovery of Household Tariffs, 2015

(in percent)

	2015	end 2018
Heating	32	100
Natural Gas	38	100
Electricity	75	100
Sewer	33	100
Water	36	100
Use of elevator	37	100
Technical maintenance	87	100
Removal of waste	83	100
Average (all utilities)	48.5	100

Sources: Belarusian and Ukrainian authorities; and IMF staff calculations.

Belarus: Cost Recovery of Household Tariffs, 2015

(in percent)

	2015	end 2018
Heating	32	100
Natural Gas	38	100
Electricity	75	100
Sewer	33	100
Water	36	100
Use of elevator	37	100
Technical maintenance	87	100
Removal of waste	83	100
Average (all utilities)	48.5	100

Sources: Belarusian and Ukrainian authorities; and IMF staff calculations.

HH utility subsidies and fiscal costs in Belarus are significant. Utility subsidies to HHs accounted for around two percent of GDP in 2015, with about 1 percent of GDP financing from the budget and the rest financed by cross-subsidies from industry.

Belarus’s proposed HH utility reforms are comprehensive. The authorities have committed to increase the average cost recovery of all utilities from 48.5 percent in 2015 to 100 percent in 2018. So far in 2016, they have reached 58 percent, and plan to achieve 75 percent cost recovery in 2017.

The authorities are reinforcing SSNs to protect the most vulnerable HHs from the impact of utility sector reforms. While the impact of utility reforms on HH expenditures will be significant, the impact on the poorest is expected to be fully offset by a new targeted social assistance mechanism, effective 4Q2016. The new mechanism will be funded from the budget (with fiscal space generated by lower budget subsidies to utilities).

Box 5.

Belarus: Pension System Sustainability and Reform Options

Belarus’s pension system is currently near balance, following policy measures in recent years. Contributions from employers and workers roughly match payments to retirees. This achievement is unusual in the region (many peers have imbalances), and reflects a series of policy measures in recent years to maintain the balance despite negative demographics. These include recent increases in the minimum eligibility period for a retirement pension from 5 to 20 years.

The recent decision to gradually increase the retirement age will offset negative demographics and maintain pension system balance through 2022. Beginning January 2017, the retirement age will be increased by six months each year, up to 63 years for men and 58 years for women, with equivalent increases for preferential, long-service, and military pensions.

However, further reforms will be needed by 2023 to head off pension system deficits. Staff analysis projects that the pension system will experience an annual fiscal deterioration of about 0.15 percent of GDP beginning 2023. The authorities have publicly pledged to take additional (but unspecified) measures as needed to maintain pension balance.

Further reforms before 2023 would create space to reduce the very high social security contribution rate of 35 percent (29 percent for pension contributions; 6 percent for other social programs). Measures could include: (i) gradual increases in male and female retirement ages to 65 and then link them to life expectancy; (ii) re-indexing benefits to inflation instead of wage growth in the long-run (though retaining some mix for minimum pensions); (iii) continuing early retirement reduction; and (iv) measures to incentivize labor demand for older age cohorts.

Box 6.

Belarus: FSAP Key Findings and Recommendations

Systemic Solvency and Liquidity. Banking sector credit risk is very high, while FX liquidity risk is rising. Credit concentration risk is large at individual banks and indirect credit risk from unhedged borrowers in FX remains a concern. The main risk for systemic liquidity derives from high dollarization of deposits; liquidity stress tests reveal significant pockets of vulnerability in FX positions. Legal, liquidity, and operational risks exist in the interbank payment system. Direct cross-border contagion risks are large, especially from Russia. The insurance sector is exposed to significant contagion risk, through investments in bank deposits and credit default insurance products.

Banking and Insurance Oversight. State ownership increases the complexity of achieving independent risk-based financial oversight. The adjustment of prudential standards as a form of forbearance in the banking sector is eroding market discipline. The lack of detailed requirements on corporate restructuring may result in understated problem loans and evergreening. The NBRB should undertake AQRs on banks with significant differences between their IFRS and local accounting standard provisions and impose Pillar 2 capital add-ons and other forward looking measures to reinforce capital prudential measures. Bank and insurance oversight is constrained by lack of operational independence. The risk management framework for financial market infrastructures needs a stronger legal basis, risk scenarios, and links with central bank governance. The planned move of the supervision of the Development Bank (DB) to the NBRB should be combined with adequate staffing capacity.

Systemic liquidity management. High deposit dollarization and limited access to FX liquidity poses significant risk. The liquidity needs, especially in FX, are likely underestimated as term deposits are callable without penalty. The NBRB should increase the reserve requirement rate for FX deposits required to be integrated in FX accounts, rather than in local currency, and recalibrate mandatory liquidity indicators by currency to better reflect these risks.

Macroprudential policy and framework. The authorities should implement the planned creation of the Financial Stability Council legally mandated for ensuring financial stability. The risk assessment framework should be enhanced, including identification of unhedged FX debtors, and specific measures, such as increasing the risk weights on exposures to unhedged debtors, should be considered to complement macroeconomic policies for de-dollarization.

Resolution of NPLs. A holistic and in-depth NPL resolution, hand-in-hand with corporate restructuring, is critical for preserving financial stability. NPL resolution responsibilities should be delegated to an entity with wider powers for debt and enterprise restructuring and with a broad menu of instruments. The legal framework governing creditor/debtor relationships is comprehensive, but several laws and institutions need improvement. Non-judicial and in-court procedures allow quite rapid recovery of NPLs but liquidation and rehabilitation proceedings are perceived as ineffective.

Financial Safety Net. A comprehensive financial safety net is needed. The NBRB should be designated as responsible for bank resolution. Resolution tools should be broadened. A new Emergency Liquidity Assistance facility to provide collateralized emergency liquidity support to solvent banks is urgently needed. The Deposit Insurance Agency should be able to provide funding for purchase and assumption transactions. The authorities should consider limiting the amount of deposit insurance coverage and shortening the payout period, in line with international standards, over time.

Development Bank. Given the DB’s growing role in development finance, its mandate needs to be clarified and its governance, risk management and supervision strengthened. Its focus should be limited to areas not adequately served by commercial banks (e.g., export and SME financing). The DB should continue to be prohibited from taking customer deposits and provide enterprise financing through whole sale lending to other banks. The DB could finance viable infrastructure and longer term investment projects on the basis of competitive project selection and cost-benefit analysis.

Table 1a.

Belarus: Selected Economic Indicators (Baseline Scenario), 2014–21

Sources: Belarusian authorities; and IMF staff estimates.

^{^1/}Contribution to growth.

^{^2/}Gross consolidated external debt of the public sector (central bank and general government debt including publicly guaranteed debt).

^{^3/}The reduction in government saving and a corresponding increase in nongovernment saving include bank recapitalization and layouts related to public guaranteed debt.

^{^4/}Cyclically adjusted; excluding NPP; including net new directed lending.

^{^5/}Includes general government and off balance sheet operations.

^{^6/}Consolidated debt of the non-financial public sector (general government debt including publicly guaranteed debt).

Table 1a.

Belarus: Selected Economic Indicators (Baseline Scenario), 2014–21

					2014	2015	2016	2017	2018	2019	2020	2021
							Proj.
					(Percentage change)
National accounts
	Real GDP				1.7	−3.9	−3.0	−0.5	0.5	1.0	1.3	1.8
		Total domestic demand			0.3	−6.3	−9.7	−3.6	−0.8	0.1	0.3	1.3
			Consumption		3.2	−2.0	−3.9	0.4	1.3	1.7	1.3	2.0
				Nongovernment	4.3	−2.4	−2.5	0.4	1.5	1.7	1.4	2.4
				Government	−2.0	−0.4	−11.0	0.2	0.2	1.3	0.9	−0.2
			Investment		−5.0	−15.2	−23.4	−15.7	−8.2	−5.7	−3.9	−1.9
			Net exports ^1/		1.2	5.3	5.0	1.7	1.3	0.8	1.0	0.5
		Consumer prices
			End of period		16.2	12.0	13.0	11.0	10.0	9.0	9.0	9.0
			Average		18.1	13.5	12.7	12.0	9.7	9.3	8.9	9.0
			GDP deflator		17.8	16.3	13.0	8.7	8.9	8.3	8.6	8.7
Monetary accounts
	Rubel base money				12.8	7.4	2.5	13.3	12.8	12.5	10.6	10.0
	Broad money				23.6	36.8	15.0	13.5	12.5	11.0	10.5	10.0
					(Percent of GDP, unless otherwise indicated)
External debt and balance of payments
	Current account balance				−6.9	−3.8	−4.9	−4.8	−4.4	−4.2	−3.7	−3.3
	Trade balance				−3.5	−3.9	−6.6	−5.7	−5.3	−4.9	−4.2	−4.0
		Exports of goods			46.5	48.0	47.9	50.4	50.2	50.1	49.8	49.6
		Imports of goods			−50.0	−51.9	−54.5	−56.1	−55.5	−55.0	−54.0	−53.5
	Gross external debt				52.6	70.1	81.8	82.7	81.4	80.1	77.8	74.0
		Public ^2/			23.1	31.9	38.3	41.7	40.2	39.5	38.4	36.0
		Private (incl. state-owned-enterprises)			29.5	38.1	43.5	41.1	41.2	40.5	39.4	38.0
	Net IIP				−55.0	−75.0	−88.5	−90.2	−90.9	−92.2	−91.9	−90.1
Savings and investment
	Gross domestic investment				35.6	30.0	26.9	23.6	21.8	20.5	19.4	18.7
		Government			5.3	4.5	5.5	6.9	6.8	6.7	6.6	5.7
		Nongovernment (incl. SOEs)			30.2	25.5	21.3	16.7	15.0	13.8	12.8	12.9
	National saving ^3/				28.7	26.2	21.9	18.8	17.4	16.3	15.7	15.3
		Government			2.9	7.2	6.8	8.2	8.6	8.9	8.6	8.6
		Nongovernment			25.8	19.0	15.1	10.5	8.8	7.3	7.2	6.7
Public sector finance
	State budget balance				0.7	2.3	−1.5	−3.1	−3.0	−3.0	−2.8	−1.5
		State budget balance (excl. nuclear power plant, “NPP”)			0.7	2.6	0.3	0.4	0.4	0.3	0.4	0.8
	General government balance (incl. SPF)				0.7	1.9	−1.9	−3.6	−3.3	−3.3	−3.1	−1.8
	Primary general government balance				2.0	3.6	0.4	−1.0	−0.5	0.1	0.5	1.8
	Primary general government balance (excl. NPP)				2.0	4.0	2.3	2.6	2.9	3.4	3.8	4.2
	Cyclically adjusted primary balance ^4/				−1.4	5.7	4.2	5.6	5.6	5.3	5.1	4.7
	Overall balance ^5/				0.0	−1.5	−2.8	−6.5	−6.2	−6.1	−6.0	−4.7
	Gross general government debt and guaranteed debt ^6/				37.3	53.7	54.9	59.2	62.8	65.7	68.2	69.2
		Of which: Public guarantees			12.5	14.5	14.5	14.5	14.5	14.5	14.5	14.5
Memorandum items:
	Nominal GDP (billions of U.S. dollars)				76	55	48	50	52	54	56	59
	Nominal GDP (trillions of BYR)				778	870	953	1,031	1,129	1,235	1,359	1,504
	Terms of trade, percentage change				2.2	−11.9	−8.9	−1.2	−1.2	−1.0	−0.7	−0.4
	Real Effective Exchange Rate (“-” denotes a depreciation)				8.5	−9.2
	Nominal Effective Exchange Rate (“-” denotes a depreciation)				−3.8	−12.6
	Official reserves (billions of U.S. dollars)				5.1	4.2	4.2	4.5	4.4	4.4	4.5	4.6
		Months of imports of goods and services			1.9	1.7	1.6	1.6	1.6	1.5	1.5	1.5
		Percent of short-term debt			37.2	35.4	36.0	38.6	37.1	36.0	36.7	36.3
	Quota (2016): SDR 681.5 million (950.8 million U.S. dollars)

Sources: Belarusian authorities; and IMF staff estimates.

^{^1/}Contribution to growth.

^{^2/}Gross consolidated external debt of the public sector (central bank and general government debt including publicly guaranteed debt).

^{^3/}The reduction in government saving and a corresponding increase in nongovernment saving include bank recapitalization and layouts related to public guaranteed debt.

^{^4/}Cyclically adjusted; excluding NPP; including net new directed lending.

^{^5/}Includes general government and off balance sheet operations.

^{^6/}Consolidated debt of the non-financial public sector (general government debt including publicly guaranteed debt).

Table 1a.

Belarus: Selected Economic Indicators (Baseline Scenario), 2014–21

					2014	2015	2016	2017	2018	2019	2020	2021
							Proj.
					(Percentage change)
National accounts
	Real GDP				1.7	−3.9	−3.0	−0.5	0.5	1.0	1.3	1.8
		Total domestic demand			0.3	−6.3	−9.7	−3.6	−0.8	0.1	0.3	1.3
			Consumption		3.2	−2.0	−3.9	0.4	1.3	1.7	1.3	2.0
				Nongovernment	4.3	−2.4	−2.5	0.4	1.5	1.7	1.4	2.4
				Government	−2.0	−0.4	−11.0	0.2	0.2	1.3	0.9	−0.2
			Investment		−5.0	−15.2	−23.4	−15.7	−8.2	−5.7	−3.9	−1.9
			Net exports ^1/		1.2	5.3	5.0	1.7	1.3	0.8	1.0	0.5
		Consumer prices
			End of period		16.2	12.0	13.0	11.0	10.0	9.0	9.0	9.0
			Average		18.1	13.5	12.7	12.0	9.7	9.3	8.9	9.0
			GDP deflator		17.8	16.3	13.0	8.7	8.9	8.3	8.6	8.7
Monetary accounts
	Rubel base money				12.8	7.4	2.5	13.3	12.8	12.5	10.6	10.0
	Broad money				23.6	36.8	15.0	13.5	12.5	11.0	10.5	10.0
					(Percent of GDP, unless otherwise indicated)
External debt and balance of payments
	Current account balance				−6.9	−3.8	−4.9	−4.8	−4.4	−4.2	−3.7	−3.3
	Trade balance				−3.5	−3.9	−6.6	−5.7	−5.3	−4.9	−4.2	−4.0
		Exports of goods			46.5	48.0	47.9	50.4	50.2	50.1	49.8	49.6
		Imports of goods			−50.0	−51.9	−54.5	−56.1	−55.5	−55.0	−54.0	−53.5
	Gross external debt				52.6	70.1	81.8	82.7	81.4	80.1	77.8	74.0
		Public ^2/			23.1	31.9	38.3	41.7	40.2	39.5	38.4	36.0
		Private (incl. state-owned-enterprises)			29.5	38.1	43.5	41.1	41.2	40.5	39.4	38.0
	Net IIP				−55.0	−75.0	−88.5	−90.2	−90.9	−92.2	−91.9	−90.1
Savings and investment
	Gross domestic investment				35.6	30.0	26.9	23.6	21.8	20.5	19.4	18.7
		Government			5.3	4.5	5.5	6.9	6.8	6.7	6.6	5.7
		Nongovernment (incl. SOEs)			30.2	25.5	21.3	16.7	15.0	13.8	12.8	12.9
	National saving ^3/				28.7	26.2	21.9	18.8	17.4	16.3	15.7	15.3
		Government			2.9	7.2	6.8	8.2	8.6	8.9	8.6	8.6
		Nongovernment			25.8	19.0	15.1	10.5	8.8	7.3	7.2	6.7
Public sector finance
	State budget balance				0.7	2.3	−1.5	−3.1	−3.0	−3.0	−2.8	−1.5
		State budget balance (excl. nuclear power plant, “NPP”)			0.7	2.6	0.3	0.4	0.4	0.3	0.4	0.8
	General government balance (incl. SPF)				0.7	1.9	−1.9	−3.6	−3.3	−3.3	−3.1	−1.8
	Primary general government balance				2.0	3.6	0.4	−1.0	−0.5	0.1	0.5	1.8
	Primary general government balance (excl. NPP)				2.0	4.0	2.3	2.6	2.9	3.4	3.8	4.2
	Cyclically adjusted primary balance ^4/				−1.4	5.7	4.2	5.6	5.6	5.3	5.1	4.7
	Overall balance ^5/				0.0	−1.5	−2.8	−6.5	−6.2	−6.1	−6.0	−4.7
	Gross general government debt and guaranteed debt ^6/				37.3	53.7	54.9	59.2	62.8	65.7	68.2	69.2
		Of which: Public guarantees			12.5	14.5	14.5	14.5	14.5	14.5	14.5	14.5
Memorandum items:
	Nominal GDP (billions of U.S. dollars)				76	55	48	50	52	54	56	59
	Nominal GDP (trillions of BYR)				778	870	953	1,031	1,129	1,235	1,359	1,504
	Terms of trade, percentage change				2.2	−11.9	−8.9	−1.2	−1.2	−1.0	−0.7	−0.4
	Real Effective Exchange Rate (“-” denotes a depreciation)				8.5	−9.2
	Nominal Effective Exchange Rate (“-” denotes a depreciation)				−3.8	−12.6
	Official reserves (billions of U.S. dollars)				5.1	4.2	4.2	4.5	4.4	4.4	4.5	4.6
		Months of imports of goods and services			1.9	1.7	1.6	1.6	1.6	1.5	1.5	1.5
		Percent of short-term debt			37.2	35.4	36.0	38.6	37.1	36.0	36.7	36.3
	Quota (2016): SDR 681.5 million (950.8 million U.S. dollars)

Sources: Belarusian authorities; and IMF staff estimates.

^{^1/}Contribution to growth.

^{^2/}Gross consolidated external debt of the public sector (central bank and general government debt including publicly guaranteed debt).

^{^3/}The reduction in government saving and a corresponding increase in nongovernment saving include bank recapitalization and layouts related to public guaranteed debt.

^{^4/}Cyclically adjusted; excluding NPP; including net new directed lending.

^{^5/}Includes general government and off balance sheet operations.

^{^6/}Consolidated debt of the non-financial public sector (general government debt including publicly guaranteed debt).

Table 1b.

Belarus: Selected Economic Indicators (Adjustment Scenario), 2014–21

Sources: Belarusian authorities; and IMF staff estimates.

^{^1/}Contribution to growth.

^{^2/}Gross consolidated external debt of the public sector (central bank and general government debt including publicly guaranteed debt).

^{^3/}The reduction in government saving and a corresponding increase in nongovernment saving include bank recapitalization and layouts related to public guaranteed debt.

^{^4/}Cyclically adjusted; excluding NPP; including net new directed lending.

^{^5/}Includes general government and off balance sheet operations.

^{^6/}Consolidated debt of the public sector (central bank and general government debt including publicly guaranteed debt).

Table 1b.

Belarus: Selected Economic Indicators (Adjustment Scenario), 2014–21

					2014	2015	2016	2017	2018	2019	2020	2021
							Proj.
					(Percentage change)
National accounts
	Real GDP				1.7	−3.9	−3.5	−1.0	1.0	2.0	3.0	4.6
		Total domestic demand			0.3	−6.3	−9.2	−6.8	−2.0	1.0	2.2	4.4
			Consumption		3.2	−2.0	−3.2	−0.6	1.5	2.3	2.7	2.2
				Nongovernment	4.3	−2.4	−2.7	−0.5	1.5	1.9	2.5	2.7
				Government	−2.0	−0.4	−6.2	−1.3	1.1	4.0	3.5	−0.4
			Investment		−5.0	−15.2	−23.3	−25.4	−15.7	−5.3	−0.1	16.0
			Net exports ^1/		1.2	5.3	5.1	3.5	2.9	1.0	0.8	0.3
		Consumer prices
				End of period	16.2	12.0	13.0	10.0	7.0	7.0	6.5	6.0
				Average	18.1	13.5	13.0	10.8	7.7	6.4	6.8	6.0
			GDP deflator		17.8	16.3	14.8	4.6	6.9	6.8	6.4	5.6
Monetary accounts
	Rubel base money				12.8	7.4	0.0	14.0	13.6	13.4	11.5	10.4
	Broad money				23.6	36.8	13.8	12.5	12.0	11.3	10.6	10.0
					(Percent of GDP, unless otherwise indicated)
External debt and balance of payments
	Current account balance				−6.9	−3.8	−4.8	−4.6	−2.5	−1.7	−1.1	−0.6
	Trade balance				−3.5	−3.9	−6.5	−5.4	−3.2	−2.2	−1.6	−1.4
		Exports of goods			46.5	48.0	47.5	51.4	51.1	50.5	50.1	48.5
		Imports of goods			−50.0	−51.9	−54.0	−56.7	−54.3	−52.7	−51.7	−50.0
	Gross external debt				52.6	70.1	81.5	84.4	79.7	73.8	68.8	61.6
		Public ^2/			23.1	31.9	38.3	42.3	40.2	37.7	35.1	31.0
		Private (incl. state-owned-enterprises)			29.5	38.1	43.2	42.2	39.5	36.1	33.7	30.6
	Net IIP				−55.0	−75.0	−87.5	−91.3	−89.0	−85.0	−80.4	−73.8
Savings and investment
	Gross domestic investment				35.6	30.0	26.7	21.6	18.3	17.0	16.4	17.8
		Government			5.3	4.5	5.5	7.8	7.7	7.6	7.6	6.6
		Nongovernment (incl. SOEs)			30.2	25.5	21.2	13.8	10.6	9.3	8.8	11.2
	National saving ^3/				28.7	26.2	21.9	17.0	15.8	15.3	15.3	17.2
		Government			2.9	7.2	6.0	7.5	8.6	9.6	10.6	11.5
		Nongovernment			25.8	19.0	15.8	9.5	7.2	5.7	4.7	5.8
Public sector finance
	State budget balance				0.7	2.3	−2.0	−4.2	−3.7	−2.7	−1.4	1.0
		State budget balance (excl. nuclear power plant, “NPP”)			0.7	2.6	−0.1	−0.6	−0.2	0.5	1.7	3.2
	General government balance (incl. SPF)				0.7	1.9	−2.6	−5.4	−4.5	−3.4	−1.8	0.6
	Primary general government balance				2.0	3.6	−0.3	−2.6	−1.2	0.6	2.6	4.7
	Primary general government balance (excl. NPP)				2.0	4.0	1.5	1.0	2.2	3.8	5.7	6.8
	Cyclically adjusted primary balance ^4/				−0.8	2.0	2.7	3.9	4.9	6.3	7.5	7.7
	Overall balance ^5/				0.0	−1.5	−3.8	−9.2	−8.7	−8.1	−1.8	0.6
	Gross public debt and government guaranteed debt ^6/				36.5	53.7	56.1	62.9	66.9	68.5	63.4	55.6
		Of which: Public guarantees			12.5	14.5	12.7	10.9	9.1	7.3	5.4	3.6
Memorandum items:
	Nominal GDP (billions of U.S. dollars)				76	55	49	49	51	55	59	64
	Nominal GDP (trillions of rubels)				778	870	964	998	1,078	1,175	1,287	1,422
	Terms of trade, percentage change				2.2	−11.9	−8.8	−3.4	−1.0	−0.4	−0.3	0.0
	Real Effective Exchange Rate (“-” denotes a depreciation)				8.5	−9.2
	Nominal Effective Exchange Rate (“-” denotes a depreciation)				−3.8	−12.6
	Official reserves (billions of U.S. dollars)				5.1	4.2	4.2	5.2	5.6	5.7	7.1	7.6
		Months of imports of goods and services			1.9	1.6	1.6	2.0	2.0	1.9	2.3	2.3
		Percent of short-term debt			37.2	35.4	36.0	44.4	47.1	47.3	58.0	60.6
	Quota (2016): SDR 681.5 million (950.8 million U.S. dollars)

Sources: Belarusian authorities; and IMF staff estimates.

^{^1/}Contribution to growth.

^{^2/}Gross consolidated external debt of the public sector (central bank and general government debt including publicly guaranteed debt).

^{^3/}The reduction in government saving and a corresponding increase in nongovernment saving include bank recapitalization and layouts related to public guaranteed debt.

^{^4/}Cyclically adjusted; excluding NPP; including net new directed lending.

^{^5/}Includes general government and off balance sheet operations.

^{^6/}Consolidated debt of the public sector (central bank and general government debt including publicly guaranteed debt).

Table 1b.

Belarus: Selected Economic Indicators (Adjustment Scenario), 2014–21

					2014	2015	2016	2017	2018	2019	2020	2021
							Proj.
					(Percentage change)
National accounts
	Real GDP				1.7	−3.9	−3.5	−1.0	1.0	2.0	3.0	4.6
		Total domestic demand			0.3	−6.3	−9.2	−6.8	−2.0	1.0	2.2	4.4
			Consumption		3.2	−2.0	−3.2	−0.6	1.5	2.3	2.7	2.2
				Nongovernment	4.3	−2.4	−2.7	−0.5	1.5	1.9	2.5	2.7
				Government	−2.0	−0.4	−6.2	−1.3	1.1	4.0	3.5	−0.4
			Investment		−5.0	−15.2	−23.3	−25.4	−15.7	−5.3	−0.1	16.0
			Net exports ^1/		1.2	5.3	5.1	3.5	2.9	1.0	0.8	0.3
		Consumer prices
				End of period	16.2	12.0	13.0	10.0	7.0	7.0	6.5	6.0
				Average	18.1	13.5	13.0	10.8	7.7	6.4	6.8	6.0
			GDP deflator		17.8	16.3	14.8	4.6	6.9	6.8	6.4	5.6
Monetary accounts
	Rubel base money				12.8	7.4	0.0	14.0	13.6	13.4	11.5	10.4
	Broad money				23.6	36.8	13.8	12.5	12.0	11.3	10.6	10.0
					(Percent of GDP, unless otherwise indicated)
External debt and balance of payments
	Current account balance				−6.9	−3.8	−4.8	−4.6	−2.5	−1.7	−1.1	−0.6
	Trade balance				−3.5	−3.9	−6.5	−5.4	−3.2	−2.2	−1.6	−1.4
		Exports of goods			46.5	48.0	47.5	51.4	51.1	50.5	50.1	48.5
		Imports of goods			−50.0	−51.9	−54.0	−56.7	−54.3	−52.7	−51.7	−50.0
	Gross external debt				52.6	70.1	81.5	84.4	79.7	73.8	68.8	61.6
		Public ^2/			23.1	31.9	38.3	42.3	40.2	37.7	35.1	31.0
		Private (incl. state-owned-enterprises)			29.5	38.1	43.2	42.2	39.5	36.1	33.7	30.6
	Net IIP				−55.0	−75.0	−87.5	−91.3	−89.0	−85.0	−80.4	−73.8
Savings and investment
	Gross domestic investment				35.6	30.0	26.7	21.6	18.3	17.0	16.4	17.8
		Government			5.3	4.5	5.5	7.8	7.7	7.6	7.6	6.6
		Nongovernment (incl. SOEs)			30.2	25.5	21.2	13.8	10.6	9.3	8.8	11.2
	National saving ^3/				28.7	26.2	21.9	17.0	15.8	15.3	15.3	17.2
		Government			2.9	7.2	6.0	7.5	8.6	9.6	10.6	11.5
		Nongovernment			25.8	19.0	15.8	9.5	7.2	5.7	4.7	5.8
Public sector finance
	State budget balance				0.7	2.3	−2.0	−4.2	−3.7	−2.7	−1.4	1.0
		State budget balance (excl. nuclear power plant, “NPP”)			0.7	2.6	−0.1	−0.6	−0.2	0.5	1.7	3.2
	General government balance (incl. SPF)				0.7	1.9	−2.6	−5.4	−4.5	−3.4	−1.8	0.6
	Primary general government balance				2.0	3.6	−0.3	−2.6	−1.2	0.6	2.6	4.7
	Primary general government balance (excl. NPP)				2.0	4.0	1.5	1.0	2.2	3.8	5.7	6.8
	Cyclically adjusted primary balance ^4/				−0.8	2.0	2.7	3.9	4.9	6.3	7.5	7.7
	Overall balance ^5/				0.0	−1.5	−3.8	−9.2	−8.7	−8.1	−1.8	0.6
	Gross public debt and government guaranteed debt ^6/				36.5	53.7	56.1	62.9	66.9	68.5	63.4	55.6
		Of which: Public guarantees			12.5	14.5	12.7	10.9	9.1	7.3	5.4	3.6
Memorandum items:
	Nominal GDP (billions of U.S. dollars)				76	55	49	49	51	55	59	64
	Nominal GDP (trillions of rubels)				778	870	964	998	1,078	1,175	1,287	1,422
	Terms of trade, percentage change				2.2	−11.9	−8.8	−3.4	−1.0	−0.4	−0.3	0.0
	Real Effective Exchange Rate (“-” denotes a depreciation)				8.5	−9.2
	Nominal Effective Exchange Rate (“-” denotes a depreciation)				−3.8	−12.6
	Official reserves (billions of U.S. dollars)				5.1	4.2	4.2	5.2	5.6	5.7	7.1	7.6
		Months of imports of goods and services			1.9	1.6	1.6	2.0	2.0	1.9	2.3	2.3
		Percent of short-term debt			37.2	35.4	36.0	44.4	47.1	47.3	58.0	60.6
	Quota (2016): SDR 681.5 million (950.8 million U.S. dollars)

Sources: Belarusian authorities; and IMF staff estimates.

^{^1/}Contribution to growth.

^{^2/}Gross consolidated external debt of the public sector (central bank and general government debt including publicly guaranteed debt).

^{^3/}The reduction in government saving and a corresponding increase in nongovernment saving include bank recapitalization and layouts related to public guaranteed debt.

^{^4/}Cyclically adjusted; excluding NPP; including net new directed lending.

^{^5/}Includes general government and off balance sheet operations.

^{^6/}Consolidated debt of the public sector (central bank and general government debt including publicly guaranteed debt).

Table 2.

Belarus: Balance of Payments (Baseline), 2014–21 ^1/

(Billions of U.S. dollars, unless otherwise indicated)

Sources: Belarus authorities; and IMF staff estimates.

^{^1/}Data compiled based on BPM6.

Table 2.

Belarus: Balance of Payments (Baseline), 2014–21 ^1/

(Billions of U.S. dollars, unless otherwise indicated)

					2014	2015	2016	2017	2018	2019	2020	2021
							Proj.
Current account balance					−5.2	−2.1	−2.4	−2.4	−2.3	−2.3	−2.1	−2.0
		Trade balance (goods)			−2.6	−2.1	−3.2	−2.8	−2.7	−2.6	−2.4	−2.3
			Energy balance		−0.4	−1.6	−2.7	−2.8	−2.9	−3.0	−2.9	−3.0
			Nonenergy balance		−2.3	−0.6	−0.5	0.0	0.2	0.3	0.5	0.7
		Exports			35.4	26.2	23.0	25.0	25.8	26.9	27.9	29.0
			Energy		11.4	7.6	6.0	6.7	6.9	7.1	7.3	7.5
			Nonenergy		24.1	18.6	17.0	18.3	19.0	19.8	20.6	21.5
		Imports			−38.1	−28.3	−26.2	−27.8	−28.6	−29.5	−30.3	−31.3
			Energy		−11.7	−9.1	−8.7	−9.5	−9.8	−10.1	−10.2	−10.5
			Nonenergy		−26.3	−19.2	−17.5	−18.3	−18.8	−19.4	−20.0	−20.8
	Services, net				2.2	2.3	2.2	2.2	2.2	2.2	2.2	2.3
		Receipts			7.9	6.6	6.3	6.3	6.4	6.4	6.5	6.6
		Payments			−5.7	−4.3	−4.1	−4.2	−4.2	−4.2	−4.3	−4.4
	Income, net				−2.4	−2.5	−1.8	−2.3	−2.2	−2.4	−2.5	−2.6
	Transfers, net				−2.3	0.3	0.4	0.5	0.5	0.6	0.6	0.7
		of which: oil export duty transfer to Russia			−3.5	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Capital and financial accounts					4.4	0.9	1.0	2.0	2.0	2.2	2.2	2.1
	Capital account				0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
	Financial account				4.4	0.8	1.0	2.0	2.0	2.2	2.2	2.1
		Overall FDI, net			1.8	1.5	1.4	1.3	1.3	1.5	1.6	2.1
		Portfolio investment, net			0.0	−1.0	0.0	0.8	−0.8	0.0	0.0	0.0
			of which: Eurobond issue (gross)		0.0	0.0	0.0	0.8	0.0	0.0	0.0	0.0
		Trade credits, net			0.3	−0.1	0.0	0.1	0.2	0.2	0.3	0.4
		Loans, net			1.7	1.7	0.0	0.1	1.4	0.8	0.5	−0.6
			Government and monetary authorities, net		2.3	2.4	0.2	0.8	0.7	0.5	0.4	−0.4
				of which: from Russia, net	1.5	0.5	−0.3	−0.4	−0.5	−0.6	−0.6	−1.3
				of which: from EFSD (former ACF), repayments	−0.3	−0.4	−0.4	−0.4	−0.4	−0.4	−0.4	−0.2
			Banks, net		−1.4	−1.5	0.0	−0.6	0.4	0.3	0.0	0.1
			Other sectors, net		0.8	0.8	−0.3	−0.1	0.3	0.0	0.1	−0.3
		Other, net			0.6	−1.2	−0.4	−0.3	−0.2	−0.3	−0.1	0.2
Errors and omissions					−1.3	0.7	0.0	0.0	0.0	0.0	0.0	0.0
Overall balance					−2.1	−0.5	−1.4	−0.4	−0.3	−0.1	0.2	0.1
Financing					2.1	0.5	1.4	0.4	0.3	0.1	−0.2	−0.1
	Gross official reserves ("-" denotes an increase)				1.4	0.6	0.3	−0.3	0.1	0.1	−0.2	−0.1
	Use of IMF credit (+)				−1.3	−0.1	0.0	0.0	0.0	0.0	0.0	0.0
	Other donors and exceptional financing items				2.0	0.0	1.1	0.7	0.2	0.0	0.0	0.0
Financing gap					0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Memorandum items:
	Total external debt (in percent of GDP)				52.6	70.1	81.8	82.7	81.4	80.1	77.8	74.0
	Gross official reserves (end-of-period, billions of U.S. dollars)				5.1	4.2	4.2	4.5	4.4	4.4	4.5	4.6
		In months of imports of goods and services			1.9	1.7	1.6	1.6	1.6	1.5	1.5	1.5
		In percent of short-term debt			37.2	35.4	36.0	38.6	37.1	36.0	36.7	36.3
		In percent of GIR/ARA EM metric (fixed exchange rate regime)			31.7	29.8	30.5	31.6	30.1	28.9	29.2	29.5
		In percent of GIR/ARA EM metric (flexible exchange rate regime)			42.6	39.9	40.8	42.6	40.6	39.2	39.7	40.3
	Real effective exchange rate ("+" denotes appreciation)				8.5	−9.2	−9.6	0.0	0.0	0.0	0.0	0.0
	Export volume (annual percentage change)				2.2	2.4	0.8	−1.0	0.1	0.7	1.2	1.2
	Import volume (annual percentage change)				2.6	−11.3	−5.7	−2.9	−1.6	−0.6	−0.3	0.5
	Natural gas import prices for Belarus (US$ per thousands m3)				170.1	144.5	133.0	133.0	136.0	140.0	143.8	147.7
	Natural Gas, Russian Natural Gas border price in Germany (US$ per thousands m3)				386.2	269.7	154.6	149.1	149.1	149.1	149.1	149.1
	Oil import prices for Belarus (US$ per barrel)				48.3	34.2	30.3	36.6	38.8	40.4	41.8	43.0
	World market oil prices (WEO, US$ per barrel)				96.2	50.8	42.3	49.4	52.3	54.5	56.4	58.0
Current account balance					−6.9	−3.8	−4.9	−4.8	−4.4	−4.2	−3.7	−3.3
	Trade balance (goods)				−3.5	−3.9	−6.6	−5.7	−5.3	−4.9	−4.2	−4.0
			Energy balance		−0.5	−2.8	−5.7	−5.7	−5.7	−5.5	−5.2	−5.1
			Nonenergy balance		−3.0	−1.1	−0.9	0.1	0.4	0.6	1.0	1.1
		Exports			46.5	48.0	47.9	50.4	50.2	50.1	49.8	49.6
			Energy		14.9	13.9	12.5	13.5	13.3	13.3	13.1	12.9
			Nonenergy		31.6	34.1	35.4	37.0	36.8	36.9	36.7	36.7
		Imports			−50.0	−51.9	−54.5	−56.1	−55.5	−55.0	−54.0	−53.5
			Energy		−15.4	−16.7	−18.1	−19.2	−19.0	−18.8	−18.3	−18.0
			Nonenergy		−34.6	−35.2	−36.4	−36.9	−36.4	−36.2	−35.7	−35.6
	Services, net				2.8	4.2	4.5	4.4	4.2	4.1	4.0	3.9
		Receipts			10.4	12.2	13.0	12.7	12.4	12.0	11.7	11.3
		Payments			−7.5	−7.9	−8.5	−8.4	−8.2	−7.9	−7.7	−7.5
	Income, net				−3.2	−4.7	−3.8	−4.5	−4.3	−4.5	−4.5	−4.4
	Transfers, net				−3.1	0.5	0.9	1.0	1.0	1.1	1.1	1.2
		of which: oil export duty transfer to Russia			−4.5	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Capital and financial accounts					5.7	1.6	2.0	4.1	3.8	4.1	3.9	3.5
	Capital account				0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
	Financial account				5.7	1.6	2.0	4.1	3.8	4.1	3.9	3.5
		Overall FDI, net			2.4	2.7	3.0	2.7	2.6	2.7	2.9	3.6
		Portfolio investment, net			0.0	−1.8	0.0	1.6	−1.6	0.0	0.0	0.0
			of which: Eurobond issue (gross)		0.0	0.0	0.0	1.6	0.0	0.0	0.0	0.0
		Trade credits, net			0.4	−0.2	0.0	0.3	0.4	0.4	0.5	0.7
		Loans, net			2.2	3.1	−0.1	0.2	2.7	1.5	0.8	−1.1
			Government and monetary authorities, net		3.1	4.5	0.4	1.6	1.4	1.0	0.7	−0.7
				of which: from Russia, net	2.0	0.8	−0.6	−0.7	−0.9	−1.2	−1.2	−2.2
				of which: from EFSD (former ACF), repayments	−0.3	−0.6	−0.7	−0.7	−0.7	−0.7	−0.6	−0.3
			Banks, net		−1.9	−2.8	0.1	−1.1	0.7	0.6	0.0	0.1
			Other sectors, net		1.0	1.4	−0.5	−0.2	0.6	−0.1	0.2	−0.6
		Other, net			0.8	−2.2	−0.9	−0.7	−0.4	−0.5	−0.2	0.3
Errors and omissions					−1.7	1.2	0.0	0.0	0.0	0.0	0.0	0.0
Overall balance					−2.8	−1.0	−2.9	−0.8	−0.6	−0.1	0.3	0.2
Financing					2.8	1.0	2.9	0.8	0.6	0.1	−0.3	−0.2
	Gross official reserves ("-" denotes an increase)				1.9	1.1	0.6	−0.7	0.2	0.1	−0.3	−0.2
	Use of IMF credit (+)				−1.7	−0.1	0.0	0.0	0.0	0.0	0.0	0.0
	Other donors and exceptional financing items				2.6	0.0	2.3	1.4	0.4	0.0	0.0	0.0
Financing gap					0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Memorandum items:
	Total external debt (in percent of GDP)				52.6	70.1	81.8	82.7	81.4	80.1	77.8	74.0
	Gross official reserves (end-of-period, billions of U.

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About

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Abstract

Context

Recent Developments

Outlook and Risks

Authorities’ Views

Policy Discussions

A. Structural Reforms: Unlocking More Market-Oriented Growth Potential

Staff Recommendations

Authorities’ Views

B. Fiscal Policy: Strengthening and Recalibrating

Staff Recommendations

Authorities’ Views

C. Monetary and Exchange Rate Policy: Maintaining Stability

Staff Recommendations

Authorities’ Views

D. Financial Sector: Bolstering Stability and Market-Based Lending

Staff Recommendations

Authorities’ Views

Staff Appraisal