IMF recommends Belarusian govt to refrain from pay raises this year

The International Monetary Fund (IMF) recommends the Belarusian government to reduce low-interest lending and refrain from raising pay, David Hofman, head of the IMF mission to Belarus, told reporters in Minsk.

“More decisive policy changes are urgently needed to mitigate the risk of a disorderly adjustment of external imbalances,” Mr Hofman said. “In particular, to contain domestic demand and reduce imbalances, directed lending needs to be reduced much more rapidly than currently envisaged and wages should not be raised further this year.”

Also, the government should pursue an adequately tight fiscal stance, and the National Bank of Belarus should allow more exchange rate flexibility and simultaneously tighten monetary policy, Mr Hofman said. Meanwhile, the National Bank should closely monitor risks in the banking sector, including in light of rising nonperforming loans, and intensify its efforts to contain the growth of foreign currency loans to unhedged borrowers, he said.

“Deep structural reforms continue to be needed to boost sustainable growth,” Mr Hofman said. “The mission welcomes recent reductions in the number of goods subject to price controls, but it will be important to leverage this effort by stepping up reforms in other areas to improve overall resource allocation.”

Specific steps would include initiation of a time-bound plan to reach full cost recovery of utility and transport tariffs, and concrete steps to reduce the role of the state in the economy, Mr Hofman said. “The latter should include a rapid phase out of the system of mandatory targets for enterprises and credible plans for privatization,” he said. “A strengthening of social safety nets should protect the most vulnerable in society.”

According to the National Statistics Committee (Belstat), before-tax monthly pay averaged out at 5,753,100 rubels (some $590) in Belarus in March 2014, or 6.8 percent more than the previous month

Decreasing gold and foreign exchange reserves are the key challenge for the Belarusian government, David Hofman stressed.

In the current situation, the IMF would strongly recommend the Belarusian government to increase Belarus’ international reserves and not allow them to decline, Mr Hofman said. Larger reserves mean a better safety cushion in the event of adverse economic changes, he explained.

He expressed concern that Belarus’ balance of payments deficit had reached 10.2 percent of its Gross Domestic Product (GDP) in 2013.

When asked about possible sources of financing the deficit and Belarus’ ability to pay off its debts, Mr Hofman said that such sources were very uncertain. Nevertheless, they do exist, he said, adding that he meant, above all, foreign direct investment and bilateral loans. Mr Hofman stressed that the IMF recommends the Belarusian government to go ahead with the privatization of state property.

According to the National Bank of Belarus, Belarus` gold and foreign exchange reserves (international reserves calculated in accordance with the IMF’s standards) decreased by $935.8 million in the first three months of 2014 to $5,715.1 million as of April 1.