IMF recommends Belarus to introduce deep economic reforms and predicts new economic risks

In the report issued by the IMF it mentions tha likewise other neighbors Belarus would be severely affected by lower Russian growth inflicted by the Ukrainian crisis.

The report, titled "Spring 2014 Regional Economic Issues (REI) for Central, Eastern, and Southeastern Europe (CESEE)," launched in Istanbul on April 29, says that growth is picking up in most of Central, Eastern, and Southeastern Europe (CESEE) in the wake of the eurozone recovery. It says the economic recovery of the region is expected to continue in 2014, though it will likely be weaker than previously expected.

The report does not include Russia and Turkey, but assesses the regional impact of international sanctions on Russia's economy, RFE/RL says.

It also mentions that the Ukrainian crisis has brought new risks for the region, with financial markets in Ukraine, Russia, Belarus, and Moldova coming under renewed pressure earlier this year amid concerns about sanctions against Moscow.

The IMF report says that Russia's neighbors - such as Moldova, Belarus, and the Baltics - would be severely affected by lower Russian growth. Central European economies -- Hungary, Slovenia, the Czech and Slovak republics, and Poland - and some Balkan countries like Serbia and Bulgaria have only moderate export exposures to Russia and Ukraine.

The report concludes that overall CESEE growth is now expected to be lower - at 1.9 and 2.6 percent in 2014 and 2015, respectively - than previously estimated in the IMF's "World Economic Outlook" from October 2013.

At the briefing held by David Hofman, head of the IMF mission to Belarus, for journalists in Minsk he stated that “more decisive policy changes are urgently needed to mitigate the risk of a disorderly adjustment of external imbalances”. “In particular, to contain domestic demand and reduce imbalances, directed lending needs to be reduced much more rapidly than currently envisaged and wages should not be raised further this year,” Belsat quotes him saying so.

The mission of the International Monetary Fund stayed on a visit in Minsk between April 17-28 and its goal was to hold consultations with the Belarusan authorities.

IMF recommends the Belarusian government to reduce low-interest lending and refrain from raising pay, David Hofman told reporters in Minsk.

Also, the government should pursue an adequately tight fiscal stance, and the National Bank of Belarus should allow more exchange rate flexibility and simultaneously tighten monetary policy, Mr Hofman said. Meanwhile, the National Bank should closely monitor risks in the banking sector, including in light of rising nonperforming loans, and intensify its efforts to contain the growth of foreign currency loans to borrowers, he said.

“Deep structural reforms continue to be needed to boost sustainable growth,” Mr Hofman said. “The mission welcomes recent reductions in the number of goods subject to price controls, but it will be important to leverage this effort by stepping up reforms in other areas to improve overall resource allocation.”

Specific steps would include initiation of a time-bound plan to reach full cost recovery of utility and transport tariffs, and concrete steps to reduce the role of the state in the economy, Mr Hofman said. “The latter should include a rapid phase out of the system of mandatory targets for enterprises and credible plans for privatization,” he said. “A strengthening of social safety nets should protect the most vulnerable in society.”

According to the National Statistics Committee (Belstat), before-tax monthly pay averaged out at 5,753,100 rubels (some $590) in Belarus in March 2014, or 6.8 percent more than the previous month

Decreasing gold and foreign exchange reserves are the key challenge for the Belarusian government, David Hofman stressed.

In the current situation, the IMF would strongly recommend the Belarusian government to increase Belarus’ international reserves and not allow them to decline, Mr Hofman said. Larger reserves mean a better safety cushion in the event of adverse economic changes, he explained.

He expressed concern that Belarus’ balance of payments deficit had reached 10.2 percent of its Gross Domestic Product (GDP) in 2013.

When asked about possible sources of financing the deficit and Belarus’ ability to pay off its debts, Mr Hofman said that such sources were very uncertain. Nevertheless, they do exist, he said, adding that he meant, above all, foreign direct investment and bilateral loans. Mr Hofman stressed that the IMF recommends the Belarusian government to go ahead with the privatization of state property.

According to the National Bank of Belarus, Belarus` gold and foreign exchange reserves (international reserves calculated in accordance with the IMF’s standards) decreased by $935.8 million in the first three months of 2014 to $5,715.1 million as of April 1.