IMF included Belarus and Russia to “politically unstable” countries

Belarus and Russia are among the countries of Central and Eastern Europe with the biggest risks of political instability.

Most of the Central, Eastern, and Southeastern European economies (CESEE) continue to record robust growth, while Russia and other countries in the Commonwealth of Independent States (CIS) remain in recession, says the IMF in its latest Regional Economic Issues report for the region, IMF survey informs.

Yet, average growth rates across the region are well below the levels before the crisis, thus it could take longer to catch up with advanced Europe. With the global economy facing mediocre growth prospects over the medium term, structural reforms offer the best hope for CESEE to lift growth and speed up convergence.

Central and Eastern European (CEE), Southeastern European (SEE) and Turkish economies have continued to expand at around 3-4 percent in 2015 (see table). In much of the region, growth has been driven by domestic consumption, which, in turn, is due to supportive macroeconomic policies and rising real wages. European Union (EU) member countries also benefited from a boost to investment due to increased utilization of EU funds before their expiration in 2015.

CIS countries remain in recession. The Russian economy contracted sharply last year as a result of plunging oil prices and Western sanctions, and will likely return to growth next year. Other CIS countries suffered from domestic political and financial woes and weaker external demand. IMF forecasts CIS contraction in 2016 to moderate to 1.5 percent, from 4.25 percent in 2015.

To close the gap with advanced Europe faster, CESEE countries thus need stronger policies to improve labor supply, boost investment, and increase efficiency.

Structural reforms are of paramount importance to raise productivity that, in turn, could result in faster convergence with advanced Europe. CESEE countries should upgrade their legal systems, improve health care, and ensure a supportive environment for high productivity sectors and firms. To achieve this, governments should increase their efficiency, reduce the regulatory burden on businesses and improve affordability of financial services, in particular for small but productive firms.

Belarus should deeper reforms to re-orient the economy toward more private-sector-led growth, the report says.