IMF unveils Belarusian government’s commitments under Stand-By Arrangement

The International Monetary Fund (IMF) has unveiled commitments that the Belarusian government made in late 2008 under the Stand-By Arrangement with the organization.

Last week the IMF published on its website a letter sent by Prime Minister Syarhey Sidorski and the head of the National Bank of Belarus, Pyotr Prakapovich, to the Fund’s managing director to offer details about the government’s ongoing economy policy and its objectives for the remainder of 2009 and 2010.

Messrs. Prakapovich and Sidorski say that this year, the Belarusian authorities maintained tight monetary policy, cut the government’s expenditures to compensate for the substantial loss of revenues, approved a balanced budget and kept the Belarusian rubel within the band of plus/minus five percent regarding the new basket of currencies.

"We met the end-March structural benchmark on price liberalization, raised utility prices, reduced public sector wages, discontinued the practice of placing central and local government deposits in commercial banks," the English-language version of the letter reads.

Messrs. Prakapovich and Sidorski note the "significant" slowdown of the Belarusian economy’s growth in the first quarter, saying that they expect the economy to prosper in the medium term, "propelled by sound policies and global economic recovery."

"Growth should resume in 2010 and strengthen over the medium term, supported by structural reforms," they say.
When commenting on the authorities’ projections for further monetary and exchange rate policies, Messrs Prakapovich and Sidorski say that there are plans to make more use of the flexibility within the rubel’s band and tighten the monetary policy by increasing interest rates for Belarusian-rubel deposits and introducing tight limits on the supply of liquidity offered by the National Bank.

As for the government’s fiscal policy, Messrs. Prakapovich and Sidorski say that the government plans to abolish three taxes, reduce the profit tax rate from 24 to 20 percent and raise the value-added rate from 18 to 22 percent. "We have decided not to increase public sector wages before September 2009," they say. "A decision on wages will be made later in the year based on budget performance and economic developments."

They also unveil plans to cut capital expenditures to 6.2 percent of GDP in 2009 and "take further measures in 2009 to bring down fiscal subsidies on household utilities." "If a wage increase is approved later in the year, household utility tariffs would also be increased again," they say, noting that public transport fares also will be raised "to reflect inflation."

The government also intends to increase targeted social assistance to vulnerable groups. In a section on financial sector policies, Messrs. Prakapovich and Sidorski say that the authorities "have practically eliminated uncollateralized liquidity support to banks, recognizing that this support must remain truly exceptional."

Efforts will be taken to bring the country’s loan classification and provisioning requirements into line with "best international practices," they say. Among measures to reduce the government’s involvement in the financial sector, they cite disengaging the National Bank from non-core business, curbing the government’s lending function and selling banks to private hands. The government is ready to sell a majority stake in Belprambudbank and Belinvestbank and a minority stake in Belarusbank and Belahraprambank, "as soon as market conditions permit," they say. "By end-August 2009, we will engage a qualified, experienced and reputable consultant, on a competitive basis, to assist us in preparing state-owned banks for partial and full privatization."

"We intend to deepen and accelerate our program of privatization," Messrs. Prakapovich and Sidorski note. "We have prepared a draft Privatization Law, and are currently incorporating comments from the World Bank. We intend to submit this law to Parliament by September 30, 2009."

A draft presidential decree that would order the establishment of a Privatization Agency is to be submitted to Alyaksandr Lukashenka by September 30, 2009, they say.

"We also intend to step up our efforts to increase the scope for private sector activity, open the economy to foreign direct investment and improve the business climate," they say. "We will also exclude all companies in which the government has a minority share from fulfilling all quantitative targets, including output and employment targets."

In late 2008, the IMF agreed to lend Belarus $2.46 billion. Belarus requested the loan in October 2008, saying that it was needed for replenishing the country’s gold and foreign exchange reserves amid the global financial crisis.

The international organization made available some $787.9 million for Belarus in January and said that "the remainder will be phased thereafter, subject to quarterly reviews."

The IMF Executive Board on June 29 increased the amount of the loan for Belarus to about $3.52 billion, and approved the disbursement of the second tranche, $679.2 million, to the country. The funds were transferred on July 2.