World Bank Urges Belarus To Tackle Economic Reforms :: Charter'97 :: News

The World Bank recommends that Belarus take advantage of the currently strong growth the economy is enjoying, and move forward with reforming the transition economy, Interfax reports. The economy is currently benefiting from favourable external conditions, but is vulnerable if these change. The low level of foreign reserves, significant economic dependence on Russia, notably for energy exports, the weakness of the banking sector, and the instability of the pension system all pose risks for Belarussian economic development. Indeed, the Bank foresees a clear fall in the Belarussian GDP growth rate, unless these vulnerabilities are addressed by reforms. The country should diversify the structure and widen the base of its exports, finding other sources for export revenue apart from petroleum products and mineral fertilisers.

Further, the Bank sees that the industrial sector urgently needs to be restructured, as it currently suffers from low profitability and rising costs, insufficient investment in the processing industry, and is supported by subsidies. In addition, wages are growing faster than productivity.

Significance: Last year as a whole saw Belarussian GDP rise by 11%, while a year-on-year (y/y) growth rate of 8.9% was registered in the first half of 2005 (see Belarus: Growth Slows to 8.9% in H1 2005 in Belarus). We project growth to slow down to 5.4% in 2005, and further to 2.5% in 2006. The World Bank`s statement echoes those recently made by the International Monetary Fund (IMF), which warned that the strong growth lately seen in Belarus is not sustainable, as the economy remains unreformed and vulnerable to external factors (see Belarus: 29 June 2005: Belarussian Growth is Not Sustainable, IMF Cautions). RIA Novosty reports that the country`s Deputy Economics Minister, Vladimir Adashkevich, has expressed an intention to proceed with price liberalisation, with a plan to be approved by late July. However, Belarussian track record with reforms is poor; indeed, it remains one of the least unreformed economies of the former Soviet Union countries. State control of production is substantial and subsidies and vast price controls distort resource allocation. Thus, it is important that the government should utilise this period of relatively fast growth, and press on with reforms, which are imperative in order to sustain growth potential in the future.