Eurasian Development Bank continues consultations with the Authorities of the Republic of Belarus on preparing a new financial credit of the Anti-Crisis Fund
Moscow, 28 May 2015. A team of Eurasian Development Bank (EDB), the Manager of the Anti-Crisis Fund (the Manager), led by Director of the ACF Project Group Alisher Mirzoev, visited Minsk on
The discussion focused on policies aimed at stabilisation of the economy in the context of worsening external environment and significant internal and external imbalances, which have been generated over the past years as a result of excessive expansion of domestic demand. The Manager welcomes the measures taken by the Government and the National Bank to tighten fiscal and monetary policies against the background of a significant decline in capital inflows. The key measures include streamlining government programmes, overall budget consolidation, inter alia by using export oil duties, which used to be transferred to the budget of the Russian Federation, to repay the external state debt, and containment of credit growth using liquidity management instruments of the National Bank.These measures, combined with decelerated wage growth, have already contributed to lower domestic demand and a higher trade balance surplus in the first quarter of 2015 compared to the first quarter 2014. The National Bank’s transition to monetary targeting and continuous two-way auction in the foreign exchange market promises to improve the effectiveness of monetary policy in fighting inflation and to promote further exchange rate liberalisation.
However, in the Manager’s view, imbalances accumulated in the economy are still large and pose a significant risk to Belarus’ transition to a sustainable growth pattern. To adjust those imbalances, more decisive measures are called for in reducing and optimising the role of the state in economic activities and in liberalising prices and markets, including the labour market. These reforms should to be accompanied with continued tight monetary and fiscal policies aimed at slowing down inflation, lowering external imbalances, and replenishing international reserves.
The volume of the directed lending, which is one of the fundamental causes of unsustainable external imbalances, continues to be excessively large. That creates high devaluation and inflation expectations, leads to steady depletion of gross international reserves and complicates reallocation of capital to more productive sectors. A deeper reduction of directed lending, inter alia through optimisation of operations of the Development Bank of the Republic of Belarus, would release resources for more efficient projects, ease pressures on the balance of payments and exchange rate, and have a positive effect on performance of the banking system. That would also help to reduce real interest rates, which are currently high, and hold back business activity.
Massive lending under government programmes contributes to over employment and continued low efficiency of use of production facilities of state-owned enterprises, reducing the mobility of resources in the economy. Reallocation of labour and capital to the most efficient sectors under conditions of scaling down government programmes, also calls for the liberalisation of prices and markets, commercialisation of state-owned enterprises, stronger focus on improving their profitability, and strengthening the role of the private sector through privatisation and lowering regulatory barriers to entry of new enterprises. The practice of mandatory production targets for enterprises should be fully discontinued.
Keeping utility and transportation tariffs for households at a level significantly below their recovery cost creates an additional burden for the budget, which provides blanket subsidies for the population, irrespective of the level of income, and reduces the competitiveness of the real sector due to cross-subsidization. The level of full cost recovery through tariffs set for households for these services should be achieved not later than over three years period. That would relieve the burden of cross-subsidisation on enterprises and budgetary organisations, reduce budget expenditures related to subsiding these services, and release resources to provide targeted social assistance for those groups of the population whose income will be most sensitive to price liberalisation.
Based on the discussions, the Manager notes that some progress has been achieved in clearing general directions of structural reforms with the authorities, while the issues of the pace of their implementation, their depth and sequence are still under discussion. The Manager is planning to present its Appraisal of Belarus’ Request for consideration in the upcoming session of the ACF Council, tentatively scheduled for the end of the first half of 2015.
Eurasian Development Bank 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. EDB’s charter capital exceeds US $ 1.5 billion. 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 EurAsEC Anti-Crisis Fund (ACF) amounting to US$8.513 billion was formed on 9 June 2009 by the governments of the same six countries. The objectives of the ACF are to assist the 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 ACF member countries signed the Fund Management Agreement with Eurasian Development Bank giving it the role of the ACF Resources Manager.
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