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Economic Recovery in
Belarus
Natalia Koliadina
IMF Resident Representative in the
Republic of Belarus
December 3, 2009
Outline
Sources of economic growth;
External environment, productivity
changes and competitiveness;
Post-crisis constraints to economic growth;
Prospects for economic recovery.
Source of economic growth in
2001-08: supply side
Capital stock;
Skilled labor;
High capacity utilization, owing in part to
ambitious quantitative targeting;
Labor productivity growth exceeding that
of its trading partners.
Source of economic growth in
2001-08: demand side
Favorable external demand;
Demand enhancing policies.
Contributions to GDP Grow th (Percent)
Consumption
Investment
Net exports
Inventories and discrepancy
Real GDP grow th
40
25
40
25
10
10
-5
-5
-20
-20
2001A1
2003A1
2005A1
2007A1
External environment and
productivity changes
The boom in Russia boosted Belarus’s nonoil exports, while energy subsidies from
Russia made Belarus’s exports of oil
product more profitable.
125
125
Terms of Trade (2005=100)
35
30
115
115
105
105
35
30
Labor productivity
25
95
Labor Productivity and Wage Growth (Percent)
Real wage growth
25
20
20
15
15
10
10
95
85
85
75
75
65
65
1997
1999
2001
2003
2005
2007
Sources: State Committee of Statistics; and IMF
staff calculations.
5
5
0
0
2000 2001 2002 2003 2004 2005 2006 2007 2008
Sources: IMF, World Economic Outlook ; National
Statistical Offices; and IMF staff calculations.
Changes in external
competitiveness
Belarus’s external competitiveness
deteriorated prior to the crisis:
1.22
Re al Exchange Rate Inde xe s
(base year 2007)
CP I-based RER wit h Russia
1.18
1.14
1.10
1.06
1.02
CP I-based REER (14
0.98
0.94
Source: INS and IMF st aff est imat ions.
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
Oct-06
Jul-06
Apr-06
Jan-06
Oct-05
Jul-05
Apr-05
Jan-05
Oct-04
Jul-04
Apr-04
Jan-04
0.90
Post-crisis constraints
External constraints to growth:
Potential growth rates of Belarus’s main
trading partners are likely to be lower in
the aftermath of the crisis;
Easy access to the Russian market is no
longer guaranteed;
Belarus would not benefit to the same
extent as in the past from preferential
prices on oil and gas imports from Russia.
Post-crisis constraints
Domestic constraints to growth:
Domestic savings have been lower than
investment, putting pressure on an
investment-driven growth;
Returns on investment have been
diminishing;
Labor force is likely to shrink reflecting
demographic trends.
Prospects for economic
recovery
Market forces have to play a major role in the
allocation of resources:
Price controls need to be reduced to a minimum;
Wages need to be liberalized to reward high
productivity; labor mobility needs to be
enhanced;
Mandatory quantitative targets at the
macroeconomic and enterprise levels need to be
abolished.
Prospects for economic growth
Financial sector reforms would improve
private sector’s access to credit resources:
The banking system should be allowed to
make lending decisions based on the
profitability and project risks, rather than
government recommendations.
Prospects for economic growth
Conditions for setting up new private
businesses should be simplified;
The regulatory burden on the private
sector needs to be further reduced and
greater flexibility in setting prices, wages
and margins allowed.
Prospects for economic growth
An ambitious and transparent privatization
agenda would help bring capital,
technology, and management and
marketing skills.
Foreign investment can help diversify
Belarus’s production base and export
market.
Thank you!