Belarus and IMF Prospects for Cooperation

According to the Finance Minister, the prospects for cooperation between the IMF and Belarus are to be discussed within the framework of the IMF mission visit to Belarus in September 2012. The Deputy Chief of the IMF mission clearly stated in April that Belarus could count on them. “If the Belarusian economy continues to stabilize steadily, the Fund will be on our side and provide us with support and assistance, including financing”, said Kharkovets.

At present, Belarus needs to attract new external financing to repay previously received foreign loans. The schedule of payments on the servicing and repayment of the first backup of the IMF loan was updated in May and is as follows: in 2012 – USD 456 million, in 2013 – USD 1.718 million, in 2014 – USD 1.378 million and in 2015 – USD 85 million. The performance figures have been updated in accordance with the forecast changes in SDR exchange rate to the U.S. dollar.

In February 2009 – April 2012, Belarus made debt service payments to the IMF amounting to USD 285.31 million (see Table 1). The balance of outstanding principal of the IMF loan declined from USD 3.484 billion on 1 January 2012 to USD 3.422 billion on 1 May (subject to exchange rate fluctuations of SDR against the U.S. dollar).

Table 1

Belarus’ debt service payments to the IMF in 2009-2012

However, the issue of providing a new loan to Belarus mainly depends on the political situation. Stabilization of political relations between Belarus and the EU will increase the probability of external financing by the IMF.

Moreover, the parties will have to agree on a series of economic policy issues.Thus, the IMF warns the Belarusian government from futile attempts to achieve high rates of economic growth and high salaries, as this may evoke a “new wave of inflation and devaluation”. It also presents a threat to “the medium-term sustainability of the budget and debt”. This was stated in an IMF press release, issued May 17, following completion of consultations in 2012, in accordance with Article IV and the second discussion of post-program monitoring.

The IMF Executive Board indicated the necessity to maintain tight monetary and fiscal policies, as well as to run full-scale structural reforms in Belarus and weaken the direct state control in the economic sphere. Experts of the Fund also recommend extending the privatization program in the country. It is mentioned in the press release that the IMF Executives noted the interest of authorities in the agreement which is financed by the IMF. However, they believe that high-ranked Belarusian officials need to demonstrate a “strong commitment to a clear and persistent strategy for stabilization and economic reforms.”

It should be pointed out that the recommendations of the Fund contradict the plans of the Belarusian government to increase the average salary to USD 500 and to reduce the refinancing rate. It is expected that the parties will have difficulties in finding a compromise on several issues of economic policy. Consequently, the terms of a new loan will be regularly postponed. In general, the perspectives for further cooperation between Belarus and the IMF are unclear. Belarus applied to the IMF for a new loan one year ago, on 31 May 2011.

In 2012, the IMF forecasts inflation in Belarus at a rate of 66%, in 2013 – 35.8% against 53.2% in 2011 (according to the annual calculation of the inflation rate). According to the calendar calculation of the inflation rate, the inflation fell to 38.4% in 2012 and 27.5% in 2013 against 108.7% in 2011 (see Table 2). The current deficit of payments balance in Belarus will be reduced to – 6.2% in 2012 and – 6.5% in 2013 against -10.4% in 2011. The level of unemployment in 2012-2013 will remain unchanged at 0.6% (according to the national methodology of calculation).

According to IMF experts, Belarus gross external debt has significantly increased in recent years, which impedes the repayment of foreign loans. Measures should be taken to improve the situation. At the end of 2011, Belarus gross external debt exceeded 60% of GDP, compared to 25% of GNP at the close of 2008. The IMF forecasts that foreign debt will decline only gradually and that it will have decreased to 56% of GDP by the end of 2017.

Gold and foreign currency reserves will remain limited (they will cover at least one month of imports and about 20% of short-term debt in the years 2014-2017). It indicates a significant risk while making debt repayments. IMF experts acknowledge the possibility of delayed foreign debt repayment if the volume of forthcoming payments on previously attracted foreign loans has noticeably increased.

Table 2

The dynamics of several economic indicators in Belarus in 2008-2017 (basic scenario forecast by the IMF )¹

¹ – The data for 2008-2010 is actual, figures for 2011are estimated. The data for 2012-2017 is the IMF forecast.

² – Gross consolidated public sector debt includes the debt of the Central Bank and governmental bodies, as well as the state guaranteed debt.