To receive financial support from the International Monetary Fund (IMF), the Belarusian government should show consistent commitment to "strong policies and structural reforms," the IMF Executive Board says in a statement released Tuesday on conclusion of the first Post-Program discussions with Belarus.
"Belarus is experiencing an economic crisis," the statement says. "After the expiration of a Stand-By Arrangement in March 2010, policies were loosened significantly. As a consequence, the current account deficit increased and the pressure on reserves intensified. After a significant loss of reserves in early 2011, confidence in the rubel fell, sparking a foreign exchange crisis and forcing the central bank to cease interventions. Foreign exchange shortages ensued, the foreign exchange markets became fragmented and a parallel market appeared."
"The authorities’ efforts to resolve the crisis have so far been insufficient to restore market confidence," the statement says. "After initial attempts to deal with the crisis with administrative measures, the authorities agreed a package of measures with the Eurasian Economic Community’s Anti-Crisis Fund (ACF), under a US$3 billion loan agreement. The announced measures include tightening of macroeconomic policies and structural reforms. However, they are not being consistently implemented: the multiple exchange rate system persists and interest rates are still negative in the real terms."
"The foreign exchange crisis has affected economic activity and increased inflation," the IMF Executive Board says, noting that GDP growth is expected to slow down from 11 percent in the first half of the year to 5½ percent in 2011 and further to 1½ percent in 2012.
The Executive Board expresses regret that the government’s "weak macroeconomic policies led to a further, sharp deterioration in the economy, contributing to a widening of the external current account deficit and a crisis in the foreign exchange market."
"Comprehensive macroeconomic adjustment and structural reforms, as well as strong political commitment, are critical to address the root causes of vulnerabilities and restore external stability," the Executive Board stresses.
According to the statement, IMF executive directors "agreed that the authorities’ plans to reduce the fiscal deficit, raise interest rates, limit lending under government programs, and unify multiple exchange rates are steps in the right direction, but stressed the importance of firm and consistent implementation."
"Directors urged the authorities to restore external stability through further fiscal and monetary policy tightening," the statement says. "They supported floating the rubel to unify exchange rates and allow the needed external adjustment. A few Directors considered that a substantial reserve buffer is needed before such a move. Directors underscored that public wage restraint should help contain exchange rate and price pressures. They also recommended putting in place an efficient social safety net to protect the most vulnerable segment of the population."
