The EFSD financial credit to Belarus is monitored
Moscow, 16 October 2018. An expert group from the Eurasian Development Bank (EDB), as the Resources Manager of the Eurasian Fund for Stabilization and Development (EFSD, Fund), visited Minsk on 2-5 October with a programme monitoring mission and consultations on amending the government’s reform programme supported by the EFSD financial credit, as regards the measures necessary to be fulfilled for the final, seventh tranche of the credit. During the visit, the experts met with Maksim Yermolovich, Minister of Finance of Belarus, Dmitry Kalechits, Deputy Chairman of the Board of the National Bank, as well as heads and employees of other ministries and authorities involved, representatives of international financial institutions, and independent experts.
The low inflation, which has not exceeded 6% since the first half of 2017, was achieved due to a favourable external environment, moderate fiscal policy, and stringent monetary conditions maintained until mid-2017. However, excess consumer demand and growing inflation expectations have contributed to an acceleration of both core and headline inflation since August 2018. In September, consumer prices rose by 5.6%, compared to 5.0% in August and 4.1% in June and July. At the same time, the EDB experts note that the probability of maintaining year-end inflation within the 6% target set by the National Bank is high.
The favourable trade environment and economic recovery have made it possible to ensure a significant consolidated fiscal surplus of 6.8% of GDP in January-July, compared to 3.6% of GDP in the same period of 2017. The cuts in fiscal expenditure for supporting state-owned enterprises, including the replenishment of their charter capitals and the performance of guarantees under foreign and domestic loans, were a significant contributor to the increase in fiscal surplus. Despite a reduction in public debt to 36.3% of GDP as at 1 August from 39.3% at the beginning of the year, the figure did not change in absolute terms. The reasons for this were the attraction of new foreign investment loans, the issuance of internal debt, and the depreciation of the Belarusian rouble.
Yet, despite the current favourable economic situation, both short- and medium-term risks exist. High economic growth rates, having reached 3.7% over the first eight months of 2018, were supported by a two-digit growth in non-primary exports fuelled by external demand and the depreciation of the real effective exchange rate. At the same time, an unbalanced growth in salaries and the reduction in the real refinancing rate have resulted in an accelerated increase in domestic demand, the impact of which was partly compensated by consumer and investment imports that have led, among other things, to the worsening of the current account. Over the first seven months of the year, the current account deficit widened to 2.5% of GDP, compared to 1.0% of GDP in the same period of 2017.
The cost of new borrowings that exceeds the forecast medium-term economic growth rates creates risks in terms of debt sustainability and a higher load on the budget and balance of payments in the medium term. The significant debt load of state-owned enterprises is an additional risk factor. The slow progress in the implementation of structural reforms on the whole and the commercialisation of state-owned enterprises in particular reduces the potential for economic growth in Belarus and may lead to a further deterioration in the financial standing of state-owned enterprises and increased pressure on public debt sustainability in the medium and long term.
The Belarusian authorities and EDB experts prepared, as a result of consultations held during the visit, a preliminary list of amendments to the reform programme supported by the EFSD financial credit as concerns the seventh tranche. The refinement of tranche conditions became necessary because of the postponement of the date for checking compliance with these conditions from 1 January 2018 until 1 December 2018 and, in particular, reflects the necessity to take into account the current and anticipated macroeconomic trends and risks identified. The final list of adjusted tranche conditions will be submitted to the Fund’s Council for review at its next meeting.
The 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 EDB's charter capital totals US $7 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.
The Eurasian Fund for Stabilization 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 EFSD assists its member countries in overcoming the consequences of the global financial crisis, ensuring their economic and financial stability, and fostering integration in the region. The EFSD member countries signed the Fund Management Agreement with Eurasian Development Bank giving it the role of the EFSD Resources Manager.
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