BELARUS NEWS AND ANALYSIS

DATE:

25/08/2006

IMF says Belarus faces much less favorable outlook

WASHINGTON, Aug 25 (Reuters) - Belarus, whose economy has grown over 8 percent a year in the past three years, is facing much less favorable circumstances ahead because of rising energy prices, the International Monetary Fund said on Friday.

"The possibility of significantly less subsidized energy imports could impart a considerable downside risk to the outlook," the IMF said in its annual review of the economy.

"Directors also pointed to Belarus's declining market share in the CIS, the large and growing non-oil current account deficit, the low level of international reserves and the diminishing output gap," it added.

Cheap Russian energy has been a key driver behind Belarus' growth between 2002 and 2005 and Gazprom (GAZPq.L: Quote, Profile, Research) has threatened to at least triple prices next year.

In order to prepare for this possible change, most IMF directors urged Minsk to fundamentally alter its fiscal and structural policies starting with spending cuts and liberalizing prices and wages and then make broader structural reforms.

The IMF spoke favorably of the country's plans to implement fiscal and structural measures by 2010 such as curbing budget transfers and subsidies, cutting taxes, strengthening the financial system, ease real wage increases, and attract foreign investors.

"A more rapid withdrawal of state intervention, including early liberalization of prices and wages, would help to underpin strong non-inflationary growth in the medium term," it said. "Structural reform measures should be implemented without delay, while the economy is still in a position of strength."

Minsk needs to improve its governance and institutional framework plus build consensus to achieve those reforms. Directed bank lending should be phased out rapidly and all remaining state support to business should be part of the budget, the IMF added.

On the inflation front, the National Bank of the Republic of Belarus (NBRB) should clarify that controlling inflation is its primary objective and that it should accept more flexibility in the exchange rate in the event of inconsistency between inflation and exchange rate targets, the IMF said.

Any further rate cuts should hinge on clear signs of lasting declines in inflationary pressures, it added.

The NBRB should also stop directing loans to the economy and scrap caps on interest rates, the IMF said.

Source:

http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2006-08-25T184449Z_01_N25348187_RTRIDST_0_ECONOMY-BELARUS-IMF.XML