The FINANCIAL — The economy in Belarus started stabilizing in the first quarter of 2017, supported by exports and sectoral output growth, according to the latest World Bank Economic Update on Belarus.
However, structural bottlenecks continue to weaken competitiveness in the country. Modest growth is expected in 2018–2019, supported by gradual improvements in external demand. Tighter fiscal and monetary policies, along with financing provided by the Government of Russia, will temporarily help address domestic and external imbalances but a permanent reduction in external vulnerabilities will require a further strengthening of fiscal performance.
Positive steps in improving the domestic business environment should be complemented by comprehensive measures to restructure the enterprise sector, facilitate the exit of inefficient companies, and create conditions for more productive firms to emerge. These measures would also help improve the competitiveness of traditional export sectors – which have been affected by a heavy reliance on petro-chemical exports.
“Boosting the competitiveness of Belarus’ traditional export sectors and reorienting the economy towards stronger export diversification will help lay the foundation for faster income growth,” said Mr. Young Chul Kim, World Bank Country Manager for Belarus. “This would require measures aimed at increasing productivity through the reduction in misallocation of capital and labor resources. The country’s endowments – a highly educated workforce and a favorable geographical location at the crossroads between East and West – can help facilitate the integration of the country into the global economy and ensure a more sustainable economic growth trajectory.”
A Special Topic Note on Lower Commodity Prices als ohighlights the risks associated with Belarus’s dependency on exports of processed oil products.
“Belarus’ petro-chemical industry has contributed to economic growth and supported domestic demand, but has also exposed the economy to volatilities in global oil markets and energy trading with Russia. This calls for stronger mitigation of external shocks,” noted Karlis Smits, World Bank Senior Economist. “Using oil duties to build fiscal buffers, instead of financing additional public spending, would help offset the negative impact of windfalls from oil-product exports on the competitiveness of traditional exports.”
Since the Republic of Belarus joined the World Bank in 1992, lending commitments to the country have totaled $1.7 billion. In addition, grant financing, totaling $28 million, has been provided to various programs – including those with civil society organizations. The active investment lending portfolio financed by the World Bank in Belarus includes nine operations, totaling $973 million.