EFSD Council approves financial credit to the Republic of Belarus

30 March 2016

Moscow, 28 March 2016. On 25 March 2016, the Council of the Eurasian Fund for Stabilisation and Development (EFSD) approved a US $2 billion stabilization loan for the Republic of Belarus. The loan will be provided in seven tranches over the period of 2016-2018, with the first tranche of US $500 million to be disbursed within coming few days, as Belarus has met all key conditions under this tranche. The remaining six tranches will be disbursed as relevant conditions are met, with two of these tranches are due in 2016, three — in 2017, and one — in 2018.

The loan will support a Programme of Reforms of the Government and the National Bank of the Republic of Belarus, consisting of two major packages of economic policy measures — establishment of the macroeconomic prerequisites for economic growth, and implementation of market reforms aimed at ensuring its sustainability.

To achieve macroeconomic stabilisation, including announced targets on inflation and gross international reserves along with price liberalisation, the Programme entails tightening control over money supply, implementation of flexible foreign exchange policies, and ensuring a balanced budget. To meet the monetary indicators set under the programme, the authorities will maintain the monetary targeting regime that, combined with flexible exchange rate policies based on the continuous double auction mechanism, has already proved its efficiency in fighting inflation, and facilitated stabilisation of the foreign exchange market and gross international reserves. The external balances will also be strengthened by executing a deficit-free budget owing to lower subsidies, inter alia as a result of raising the utility cost recovery and reduction of the interest rate compensations in the framework of directed lending, and restrained growth of budget expenditures on wages.

The structural policy measures include a notable increase of the utility cost recovery level through tariffs for households from 30% as at end-2015 to 70% as at end-2017 that would result in lower budget subsidies to utility enterprises, improved efficiency of utility service consumption by households, and lower cross-subsidisation, which is an important factor of improving the competitiveness of the Belarusian economy. To ensure more efficient use of commercial banks’ resources and lower their liquidity and credit risks, the directed lending is to be cut by 1% and 2% of GDP correspondingly in 2016 and 2017. That, combined with price liberalisation, abolishing directed targets for state-owned enterprises, reducing the accumulated gap between the real wage growth and productivity growth rates, measures to improve the entrepreneurial initiative, reducing regulatory costs for businesses, and enhancing the privatisation process, will help improve the prospects for economic growth. The Programme also includes measures to strengthen the existing and introduce new social safety nets to support vulnerable groups of the population over the period of structural transformation of the economy.

The measures implemented in the framework of the first tranche of the Programme have enabled stabilisation of the key monetary, fiscal, and external indicators and created foundations for long-term structural transformation of the economy. By 1 March 2016, the twelve-month inflation had gone down to 12.8% compared to 16.7% one year earlier that reflects the effects of both tight monetary policy implementation and a significant drop in world prices. The inflation deceleration has been recorded along with the liberalisation of prices for socially important goods, which reduced the share of regulated prices in the CPI basket by half. The authorities managed to stabilise the gross international reserves at the level of 1.5 months of imports as of 1 March 2016 (and the condition is that their level is to be raised to 2 months of imports by the end of the Programme period). The gross international reserves increase was enabled through lower domestic demand owing to the deceleration of directed lending growth by more than half and improvement of utility cost recovery through tariffs for households from 29.5% in the end — 2014 to 40% as at end-February 2016.

These measures also resulted in a surplus of the augmented general government budget of 0.4% of GDP in 2015—taking into account adjustments for operations with government debt securities aimed at addressing financial difficulties of state-owned enterprises and recapitalisation of state-owned commercial banks—compared to a deficit of 1.4% of GDP in 2014, and further budget surplus increase in January-February 2016 up to 4.9% of GDP compared to 2.8% of GDP for the same period of 2015. The current account deficit was US $2 billion in 2015 (-3.7% of GDP) as compared to US $5.2 billion (-6.9% of GDP) in 2014.

Taking into account continued high uncertainty of future developments in external markets and unclear prospects of mobilising additional financial resources, the country’s authorities are prepared to make further adjustments to their economic policies as needed.

Additional Information

Eurasian Development Bank (EDB) is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth, and the expansion of mutual trade and other economic ties in its member states. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan.

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The Eurasian Fund for Stabilisation and Development (EFSD) amounting to US$8.513 billion was formed as the EurAsEC Anti-Crisis Fund on 9 June 2009 by the governments of six countries: Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan. The objectives of the EFSD are to assist its member countries in overcoming the consequences of the global financial crisis, ensure their economic and financial stability, and foster integration processes in the region. The member states of the EFSD appointed EDB as its manager.

Read more at https://efsd.org/