IMF predicts that Belarus’ economy will grow at slower rate in foreseeable future

The International Monetary Fund (IMF) has predicted that Belarus’ economy will grow at a slower rate than recently registered for the foreseeable future in the context of a weak global recovery.

"GDP is expected to contract this year, largely because of spillovers from the deep recessions in Russia and the European Union," says a statement issued on August 28 by an IMF mission that held consultations under Article IV of the IMF's Articles of Agreement in Minsk earlier in the month. "In 2010, benefiting from a gradually recovering global economy, output is expected to register a modest rebound."

In the longer run, several external constraints may hinder a return to the growth path prior to the current crisis, the statement says. "Both the GDP level and potential growth rate of Belarus’s main trading partners are likely to be lower in the aftermath of the crisis, reducing external demand for Belarus’s products," the IMF says. "Easy access to the Russian market is no longer guaranteed. Belarus would not benefit to the same extent as in the past from preferential prices on oil and gas imports from Russia. This would have significant costs for Belarus."

Domestic factors could also hold back the country’s potential growth, the IMF warns, the statement says. It notes that domestic savings have been lower than investment, putting pressures on an investment-driven growth model as external financing is likely to be less accessible and more costly following the global crisis. In addition, the mission says, there are indications that returns from investment have declined, not only because the level of investment is already very high, but also much of the recent investment has been in residential construction.

Like some other countries with aging populations, the labor force is likely to shrink reflecting demographic trends, the statement predicts. Owing to these factors, long-term potential growth in Belarus could be two or three percent lower than the pace observed in the past decade, the mission says.

"To repeat the remarkable growth performance of recent years, it would be essential for Belarus to strengthen its growth factors by carrying out structural reforms," the statement says. "Significant productivity gains would be necessary to resume high economic growth given the limited scope to increase capital and labor input from domestic sources. In this respect, the emphasis on public expenditure on education should be maintained."

"Experience in other countries that have undergone economic transition proves that better allocation of resources, a larger and more dynamic private sector, and increased use of foreign capital can help boost productivity growth," the mission says. "Belarus has much to gain from market-oriented reforms given the fact that Belarus is still in its early stage of transition, and its structural reforms can focus on yielding state control to market forces, and steadfastly pushing ahead with privatization."