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IMF calls for strong policy response to Belarus' economic challenges

The International Monetary Fund (IMF) has warned that the Belarusian government should adopt a "strong policy response" to mitigate emerging threats to macroeconomic stability, BelaPAN said.

On December 9, the IMF Executive Board considered a staff report for the Fifth Post-Program Monitoring Discussions with Belarus. An IMF mission, led by David Hofman, stayed in Minsk in October to hold the post-program monitoring discussions with the Belarusian authorities as part of the fifth review of the country's stand-by arrangement that expired in April 2010.

"The outlook is for continued slow growth and a difficult balance of payments position in the short-term," the IMF Board said in a public notice. "Risks are heavily tilted to the downside."

The IMF Board warned that a "further worsening of the current account or the financial account could increase pressures on reserves and the rubel." "Banking risks also remain a concern, including on account of the still-rapid foreign exchange lending growth," said the statement.

The international financial institution's Directors agreed that a "tightening of macroeconomic policies as well as deep structural reforms would be needed to restore internal and external balance, and lift medium-term growth prospects."

They called for halting wage increases in 2014 and sharply reducing directed lending. "In the meantime, remaining directed lending should be channeled through the Development Bank to foster the operation of state banks on commercial terms and promote better credit allocation," said the public notice.

The Directors shared the opinion that a balanced budget was an appropriate fiscal target for next year, but said that a "surplus should be targeted instead if insufficient progress is made towards the elimination of directed lending."

The Board concurred that "scaling back interventions in the foreign exchange market would help narrow external imbalances and safeguard official reserves." "They added that a tighter monetary stance would help contain inflationary pressures and prevent exchange rate overshooting. Furthermore, a shift to a policy framework centered on targeting base money could bolster policy credibility and help pave the way for the adoption of an inflation targeting regime over the medium term," said the statement.

The Board welcomed recent steps to contain foreign currency lending by banks and recommended heightened vigilance over new deposit instruments that expose banks to exchange rate risks.

The Directors stressed that "deeper structural reforms are key to sustained non-inflationary growth" and hailed a joint plan of action to reform the economy, which was adopted by the Council of Ministers and the National Bank of Belarus earlier this year. At the same time, they emphasized the need for a "much more ambitious and frontloaded reform agenda, including comprehensive price liberalization, a detailed strategy and significant initial steps for reducing the role of the state in the economy, and a strengthening of social safety nets."
The Board warned that a new loan for Belarus would depend on its firm commitment to a comprehensive package of such reforms combined with strong macroeconomic policies.