After years of strong economic performance, risks increase for Belarus

• Pages: 336

Page 336

Following years of strong macroeconomic growth and progress in reducing inflation, the Belarus economy is facing serious risks, and the IMF, in its annual report on the country's economic policies, called for a fundamental change of course.

The good recent performance of the centralized, statedominated economy-average GDP growth of 8.2 percent in 2002-05 and a gradual slowing of inflation to less than 7 percent- reflected, among other things, prudent fiscal and monetary policies and strong growth in the nation's trading partners. But favorable outside conditions also helped. Belarus owed much of its strong growth to its ability to import energy from Russia at belowmarket prices while the prices for its energy-intensive exports grew markedly. Belarus used the trading gains to pay large wage increases, subsidize state enterprises, and finance large-scale investment projects that had underpinned a "policy of strong government interference in the economy," according to the IMF's review.

But the outlook is now much less favorable. Energy price projections suggest that beginning in 2007 there will be no further gains in the country's terms of trade and that subsidized energy imports could be lower, imparting "a considerable downside risk to the outlook."

Also of concern is Belarus's...