On 29 October an
International Monetary Fund team led by Mr. David Hofman concluded its visit
to Belarus,
The authorities’ tightening of economic policies from
late 2011 was successful in reducing inflation and stabilizing the foreign
exchange market during the first half of 2012. However, the swift reduction in
the refinancing rate and high real wage growth that followed this early success
are now contributing to renewed signs of price and exchange rate pressures.
These pressures call for a strong and coherent policy response to ensure that
economic stability is preserved.
In this regard, we welcome the increase in reserve
requirements by the National Bank of the Republic of Belarus (NBRB) in
September and its recent acknowledgement that the refinancing rate may soon be
raised. Indeed, in our view, it should start raising policy rates without
further delay to ensure that rates remain positive in real terms, thus
protecting rubel deposit holders. We also welcome the Government’s
determination to balance the budget in 2012 and 2013, which is consistent with
stabilization.
However, major additional steps are needed. In
particular, it is important that a comprehensive and consistent policy effort
is coordinated among all major policy makers—including at the highest level—and
that clear priority is given to inflation and stability objectives over the
official GDP growth targets, which we believe to be incompatible with those
objectives. As one element of this effort, lending under government programs
needs to be kept under a tight lid. This would be consistent with monetary
policy objectives and curb credit growth and at the same time it would contain
risks to the government’s budget. It is also critical that wages are not
allowed to grow faster than the output that workers produce because such growth
cannot be sustained and will result in additional pressures on prices and the
exchange rate. The NBRB should continue its flexible exchange rate policy and
seek to bolster reserves as a buffer against external shocks.
Beyond macroeconomic policies, deep structural reforms
remain vital to ensure sustainable output and income growth, and a durable
increase in living standards. The urgency of such reforms is increasing rapidly
with Russia’s recent accession to the World Trade Organization, which exposes
Belarusian companies to greater international competition, and with skilled
workers increasingly migrating abroad. Countering these developments requires
large and sustained advances in productivity and competiveness.
Key structural reforms include price liberalization,
strengthening of private property rights, development of a strategy for
state-owned enterprise restructuring and privatization, and establishment of
targeted social and unemployment benefits to protect the most vulnerable
people. Financial sector reform is also critical. In this context, the
Development Bank should focus its mission on providing a transparent and
contained vehicle for all lending under government programs. This would allow
commercial banks to operate on market terms, so that credit is channeled to the
most viable and efficient enterprises and sectors, thereby fostering
modernization and economic growth.
The IMF continues to work closely with the authorities
to assist them in meeting the economic policy challenges. We will remain
engaged through intensive policy consultation, technical assistance, and
training. Negotiations on a possible new program would require agreement among
all policy makers—including at the highest level—on a comprehensive policy
package that garners sufficient support among the IMF membership. Such a
package would need to include coherent policies that safeguard macroeconomic
stability and a commitment to deep structural reform.
Source: Press
Release: Statement by the IMF Mission to the Republic of Belarus
(2012-10-29)
Mark Pleas
[contact]
