Press Release No. 15/117

Press Release: Statement by the IMF Mission to the Republic of Belarus

March 17, 2015

An International Monetary Fund (IMF) team led by Mr. David Hofman visited Belarus during March 5–16 to hold 2015 Article IV Consultation discussions. The team met with Prime Minister Andrei Kobyakov, Chair of the Board of the National Bank of the Republic of Belarus Pavel Kallaur, First Deputy Prime Minister Vasily Matyushevsky, Minister of Economy Vladimir Zinovsky, First Deputy Minister of Finance Maxim Ermolovich, and representatives from think tanks, business, and the diplomatic community.

At the conclusion of the mission today in Minsk, Mr. Hofman made the following statement:

“Belarus’ economic model continues to make it highly vulnerable to economic shocks as was illustrated once more by the recent market turmoil, triggered by a deteriorating external environment. The recurrent pressures are rooted in the continual inability of Belarus’ over-determined central-planning model to deliver sustainable growth. Frequent bouts of expansionary macroeconomic policies have fueled inflation and external imbalances and left the country highly dependent on ad hoc external financing.

“A decisive reorientation of policies is urgently needed to promote stability and a sustainable recovery, and the recommendations of recent IMF missions remain highly relevant.

“The first steps taken by the authorities after the December reshuffle of the economic team have been encouraging. Following an initial unhelpful attempt to stave off mounting exchange rate pressures through administrative measures, the NBRB has allowed substantial rubel depreciation. It also started the transition toward a more flexible exchange rate regime, though the flexibility of the new regime remains to be tested in practice. Further, and appropriately, the NBRB significantly tightened monetary policy. Administrative measures were reversed or relaxed, although the full removal of the highly distortive ban on price increases remains a priority.

“It will be key to follow through on these steps and decisively strengthen macroeconomic policies further—including through tight domestic demand management—to rapidly reduce remaining domestic and external imbalances. In particular, the NBRB should complete the transition to a freely floating exchange rate and fully implement a money-targeting framework that is squarely focused on bringing inflation to single digits. Nominal wages should be kept constant in 2015 to compensate for excessive past growth and to preserve the competitiveness gain from recent exchange rate adjustment. The authorities should also build on the recent downward trend in directed lending and rapidly reduce such lending further, with a view to phasing it out entirely in the medium term. The government should save the windfall arising from the waiver to pay oil duties to Russia this year, implying a small surplus on the fiscal balance. Meanwhile, the NBRB should closely monitor the banking system in view of increasing risks to financial stability.

“Deep structural reform remains critical to promote sustainable future growth and break with the cycle of recurrent crises. The mission therefore urges the authorities to adopt and implement an ambitious and frontloaded reform agenda, unambiguously aimed at enhancing the market orientation of the economy. This agenda should include decisive price liberalization, including a time-bound plan to bring utility and transport tariffs rapidly to full cost recovery; the swift phase out of mandatory targets for enterprises; credible plans for privatization in the corporate and banking sectors; and a strengthening of safety nets to protect the vulnerable.

“A new IMF-suppoted program continues to require credible commitment at the highest level to a comprehensive package of deep structural reform and consistent macroeconomic policies that could be supported by the Executive Board. This package should include a fully flexible exchange rate, appropriately tight macroeconomic policies, and bold, frontloaded structural reform. If the authorities can demonstrate their preparedness to make such decisive changes to their policies, the Fund stands ready to commence work toward a new program.

“The mission thanks the authorities and other counterparts for their warm hospitality and for candid and constructive discussions.”