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Belarus: Key Developments and Challenges

The Belarusian economy has been growing rapidly in recent years and real GDP increased by 10 per cent in 2008. However, the openness of the economy means that Belarus has been severely affected by the global economic crisis, not so much through financial channels as through the fall in external demand.

Macroeconomic performance. Merchandise sales to Russia, Ukraine and other CIS countries have dropped sharply since September 2008. The economy has also suffered from negative terms of trade shocks on its main imports and exports of commodities. The price of Russian gas has continued to increase, while the price of its key commodity export – potassium – fell sharply from its summer 2008 peak. As a result of these trends, economic growth slowed despite the rapid accumulation of stocks of unsold industrial goods.

Declining export revenues led to pressures on the currency and forced the NBB to limit liquidity injections into the banking system and raise the policy interest rate from 10 to 14 per cent. On 2 January 2009 the NBB devalued the currency, which had been de facto pegged to the US dollar, by 20.5 per cent and re-pegged it to a basket consisting of the US dollar, the euro and the Russian rouble in equal proportions, while the target band was subsequently widened. In January 2009 the authorities agreed a US$ 2.5 billion stand-by arrangement with the IMF, which was increased to US$ 3.5 billion in June 2009. The package of measures agreed includes strengthening fiscal discipline, in particular through public sector wage restraint, and moderating the growth of directed lending through state-owned banks. Financing for the rising current account deficit, which reached 8.4 per cent of GDP in 2008, will depend on the government’s ability to borrow from international financial institutions (IFIs), Russia and China.

Outlook and challenges. Economic competitiveness will depend on efforts to restructure and modernize the industrial base. The success of these efforts will depend on the efficient allocation of capital and other resources, which in turn depends on further reforms to liberalize prices, the commercialization of operations in the financial sector, streamlining taxation and the introduction of other measures to improve the business environment.

In today's highly competitive global economy, new tools are needed to promote the innovation and entrepreneurship critical to dynamic growth and job creation. Government's role is to create the environment for innovators and entrepreneurs to succeed. People are our nation's greatest asset and, by combining the best minds in all sectors, we can advance our economy and our quality of life.