Statement by the Staff Representative on Belarus September 2, 2016

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

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.

1. This statement provides information that has become available since the issuance of the Staff Report on August 11, 2016. This information does not alter the thrust of the staff appraisal.

2. Effective August 17, 2016, the National Bank of the Republic of Belarus (NBRB) lowered the refinancing rate and rates on liquidity provision instruments. The refinancing rate was reduced from 20 to 18 percent and interest rates on standing facilities and bilateral operations of the NBRB were reduced from 25 to 23 percent. The Board of the NBRB noted slowing inflation, net supply of foreign exchange on the domestic foreign exchange market, an improvement in deposit structure towards irrevocable deposits with longer maturities, and other factors. They noted that lower interest rates will also help reduce financial stability risks by improving the ability of non-financial organizations to fulfill credit obligations to banks.

3. The non-performing loans continue to increase. At the end of July 2016 the share of NPLs in gross loans reached 14.3 percent relative to 13.4 percent at the end of June 2016 and 6.8 percent at the end of 2015.

4. An independent asset quality review of nine banks has been completed. The results are expected to be discussed by the Financial Stability Council.

5. Effective August 5, 2016 the NBRB became the supervisor of the Development Bank.

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
Author: International Monetary Fund. European Dept.