Statement by the IMF Mission to the Republic of Belarus

Press Release No. 11/27

February 2, 2011

An International Monetary Fund (IMF) team led by Mr. Christopher Jarvis visited Belarus during January 25 to February 2, 2011 to continue Article IV consultations with the Belarusian authorities and other stakeholders.1 The team met with Prime Minister Myasnikovich, Deputy Prime Minister Rumas, the Minister of Finance Mr. Kharkovetz, the Minister of Economy Mr. Snopkov, the Chairman of the Board of the National Bank of the Republic of Belarus Mr. Prokopovich, other senior officials, representatives of banks, and the diplomatic community. The team is grateful to the authorities for the candid discussions. Mr. Jarvis made the following statement today in Minsk at the conclusion of the mission:

"The current account deficit is too high. The government and the National Bank of the Republic of Belarus should take action quickly to bring it down. Our estimate of the current account deficit was about 16 percent of GDP in 2010 and if macroeconomic policies are unchanged we project only a small reduction in the current account deficit in 2011, reflecting an improvement in the terms of oil trade with Russia following the December 2010 agreements.

"The main causes of the high current account deficits in 2010 and 2011 are the rapid credit expansion and significant increase in budgetary wages and salaries in late 2010. The authorities recognize that reducing the current account deficit and building up official reserves should be high priorities in 2011. They have already taken some steps to reduce the current account deficit, including tightening monetary policy, using the flexibility available to them within the exchange rate band, and setting a target for overall credit growth in 2011 which is significantly lower than the increase in 2010. We believe the authorities should go further, and our recommendations for the reduction of the current account deficit are very similar to those we made in November 2010: a combination of tighter fiscal policy, cutting net lending under government programs, keeping interest rates positive in real terms and more exchange rate flexibility.

"We are concerned about the sharp increase in foreign currency borrowing by the NBRB from Belarusian commercial banks at the end of 2010. We urge the NBRB to stop such borrowing, and we welcome the NBRB's decision not to increase the level of this borrowing further during 2011. We recommend implementing tight macroeconomic policies as the best way to maintain and increase foreign exchange reserves.

"We are encouraged by progress made by the authorities on designing a Development Bank (DB). The DB will take over some of the commercial banks' responsibilities for financing government programs. We hope that the DB will make the hard choices needed between programs, and direct resources to the most efficient programs which will boost growth, exports and employment.

"We welcome the President's signature of Directive #4 on "On the Promotion of Entrepreneurial Initiative and Stimulation of Business Activity in the Republic of Belarus." Rapid implementation of the Directive will create an enabling business environment, support private sector development and make Belarus more attractive for investors. We also urge the government to quickly make operational the National Investment and Privatization Agency to ensure transparency and efficiency of the privatization process.

"IMF staff will continue close consultations with the authorities. The IMF Executive Board discussion of the Article IV consultation for Belarus is expected to take place in March 2011".

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members. A staff team visits the country (typically on an annual basis) to collect economic and financial information and discuss with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.


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