The FINANCIAL — Lower export revenues and weak domestic demand continued to affect economic growth in Belarus in 2016. While the momentum of the recession seems to have slowed – as evidenced by moderation of industrial output decline, growth in agriculture, and a slight rebound in merchandize exports – the economy will remain in recession in 2017.
A recovery is projected for 2018, however, on the back of expected improvements in the external environment and early benefits from domestic competitiveness-enhancing policies. The widening current account deficit and significant repayments of debt and debt service denominated in foreign currency continue to pose risks to external sustainability.
According to a newly released report by the World Bank, Economic Update for Belarus, reforms should focus on improving competitiveness and productivity of enterprises to accelerate the return to sustainable growth in the economy.
“A faster pace of structural transformation in Belarus – in combination with the global and regional recovery – would improve enterprise performance, strengthen the financial sector, and increase household income in the medium-term,’ said Mr. Young Chul Kim, World Bank Country Manager for Belarus. “The ongoing challenges need to be overcome through strong policies in the enterprise sector. Improving the incentives system, factor utilization rates, streamlining and upgrading of product lines, and ultimately transparency and governance of state-owned enterprises will allow enterprises to move toward better profits and higher returns on investment. Activation of mechanisms of an orderly exit of inefficient companies has to be accompanied by commensurate safety net measures to protect living standards as well as support workers to acquire new skills.”
In the Update, a Special Topic Note on Strengthening Investment Climate emphasizes that continued improvements in the business environment are needed to stimulate creation of new private companies. Over the last eight years, Belarus has been among the top ten countries in implementing business-friendly reforms, according to the latest Doing Business 2017 report.
Continuous upgrades of the domestic investment climate have had a positive impact on the growth of private micro- and small-sized enterprises. Despite the notable progress in Doing Business indicators, however, Belarus continues to struggle to attract foreign direct investment (FDI).
“Creating a favorable environment for FDI is an important task, as foreign investors can help Belarusian companies – both private and state-owned – to penetrate new markets, acquire new technologies and business processes and to manufacture new products,” noted Karlis Smits, World Bank Senior Economist. “The Government has already made steps towards building a stable macroeconomic environment required to foster investment. The next steps require legislative and institutional changes to make the country’s economy a more attractive investment destination, building on its favorable geographic location, strong scientific and engineering capacities, and strong labor skills.”
Since the Republic of Belarus joined the World Bank in 1992, lending commitments to the country have totaled US$1.7 billion. In addition, grant financing totaling US$28 million has been provided to various programs, including those with civil society organizations. The active investment lending portfolio financed by the World Bank includes nine operations totaling US$973 million.