Sustained strong growth in Belarus requires market-oriented reforms, policy tightening

• Pages: 219

Page 219

In 2004, Belarus experienced strong economic growth, supported by a favorable external environment and policies aimed at raising incomes and credit, the IMF said in its annual economic review.

Inflation was halved during 2004 and slowed further to 11 percent in April 2005, aided by a balanced budget, exchange rate stability, and continued remonetization on the back of rising trust in banks and the national currency. Inflationary financing of the budget from the central bank was discontinued, and budgetary consolidation progressed further. International reserves rose, government debt is low, and the end-2004 surge in the current account deficit was largely reversed in early 2005.

On the downside, market-oriented structural reforms have stalled, and the business environment is not conducive to private- including foreign-investment. Privatization has largely ground to a halt, and the private sector's share of GDP remains low at around 25 percent. Given the economy's current momentum, significant growth is likely in 2005, but its long-term prospects are uncertain in the absence of wide-ranging structural reforms and a phase-out of pervasive quasi-fiscal activities, notably rapid centrally mandated wage increases and directed lending (which has contributed to escalating liquidity problems in key banks and necessitated further government recapitalizations).

The IMF's Executive Board welcomed the country's strong growth, reduced...