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IMF tells Belarusian authorities to prioritize efforts to bring down inflation

The International Monetary Fund (IMF) believes that efforts to bring down inflation are the first order of business for the Belarusian government and the National Bank of Belarus, Christopher Jarvis, head of the IMF mission to Belarus, told reporters in Minsk on Monday.

Mr. Jarvis led an IMF team that earlier this month discussed the current economic situation and exchanged views with the Belarusian authorities on possible next steps in response to their request for a Fund-supported program.

"There is an urgent need to bring down inflation, which is eroding living standards and feeding depreciation expectations," Mr. Jarvis said while reading out the team's statement. "The depreciation so far has helped to bring down the current account deficit, which is an important and welcome development, but these gains would be eroded by continued high inflation. To achieve external sustainability and domestic stability, it is important that the government and the National Bank take action now to reduce inflation."

The Fund's experts concluded that the Belarusian government's policies to contain the country's economic crisis were "in the right direction." "Access to foreign exchange has become easier after the opening of the second session in the foreign exchange market in September," the statement said. "The announcement of the authorities’ plans to unify the exchange rates at a market rate and to float the rubel is another very important step forward. The authorities have also been making efforts to tighten monetary policy and have been following a prudent budget policy."

The Fund's representatives warned that "major additional efforts are also urgently needed." In particular, the IMF recommends that during the remainder of this year the "government continues to take all possible measures to contain spending and that it freezes lending under government programs, which have contributed to excessive credit increases and inflation." In addition, the National Bank should raise interest to levels which are higher than expected inflation, while wage restrains is also crucial, according to the IMF.

"The role of the November 2010 wage increase in contributing to the crisis of March 2011 is now widely recognized. We would therefore recommend avoiding further increases in the first grade wage for government workers and workers in state enterprises," the statement said.

The government and the National Bank have promised that they intend to pursue policies "which are geared towards achieving external sustainability and domestic stability: building foreign reserves, reducing the current account deficit, and reducing inflation," the team said. "This is welcome, and would be a significant departure from past policies. We especially welcome the government’s intention to propose a balanced budget for 2012. Additional measures that will be important to achieve the stated objectives are strict limits on lending under government programs, tight monetary policy, and continued wage restraint. The authorities should also continue with and accelerate their work on structural reform, especially enterprise reform, privatization, price liberalization and banking sector reform. Deep structural reform is needed for Belarus to achieve strong and lasting growth and to increase living standards in a durable way," said the statement. //BelaPAN