Аn exclusive interview of Dmitry Pankin about the conditions for new loans to Belarus and the effect of a new credit programme for the Belarusian economy

Head of EDB: The task of Belarus is major economic restructuring

Belarus is in the process of active negotiations to raise new loans. In late October, the Eurasian Fund for Stabilisation and Development's (EFSD) mission visited Minsk, and the International Monetary Fund's (IMF) delegation is expected to visit the capital of Belarus in November. 

What are the conditions for new loans to Belarus posed by the lenders? When can Belarus receive finance? What will be the effect of a new credit programme for the Belarusian economy? 

Dmitry Pankin, Chairman of the Management Board at Eurasian Development Bank (EDB), which manages the resources of the Eurasian Fund for Stabilisation and Development, answered these and other questions in an interview to BelaPAN at the 10th International Conference on Eurasian Integration. 

BelaPAN - Mr Pankin, the Belarusian side has been discussing with you the possible provision of a new credit since spring. What are the conditions, on which Eurasian Development Bank, as the resources manager of the Eurasian Fund, would be ready to approve the programme to provide a new credit to Belarus? 

Dmitry Pankin - The action framework we discuss with our Belarusian counterparts envisions the reaching of an agreement on monetary policy measures and structural reform - the issues, which are the conditions for providing a credit. The final decision on the credit will be considered by the Fund's Council, which comprises representatives of the governments of the Eurasian Economic Union countries. 

BelaPAN - When is the Fund's Council expected to consider the credit to Belarus? 

Dmitry Pankin - We expect that the credit will be considered in the first ten days of this December. 

BelaPAN - Does the Eurasian Fund for Stabilisation and Development have sufficient funds today to provide a new credit to Belarus? 

Dmitry Pankin - The Fund has sufficient resources. Its capital is US $8.5 billion. The approved credit portfolio as at today is US $3.2 billion. The shareholders' commitments to the Fund, the largest shareholders being Russia and Kazakhstan, are international liabilities. 

BelaPAN - What is the concept of the new credit programme you discuss today with the Belarusian side? 

A.: Our position is that the stabilisation credit requested by Belarus should be used not to stimulate domestic demand (maintain a certain level of salaries, credit expansion), but to balance the economy and improve its competitive ability. 

In recent years, one of the key problems in the Belarusian economy was the continuous current account deficit. In other words, economic growth was ensured by external finance. As soon as the possibilities for the country to attract new finance narrowed, serious problems appeared. 

Our recommendations are aimed at making the Belarusian economy able to generate the necessary cash flow on its own so that there be no permanent need for loans. 

BelaPAN - What key elements would you propose to include in the action framework Belarus will need to adhere under the new credit programme? 

Dmitry Pankin - Our recommendations, as the resources manager of the EFSD, are aimed at changing the Belarusian macroeconomic model. 

Until recently, this model comprised several elements: centralised finance for state-owned enterprises, the maintenance of salaries at a rather high level, and the administration of the exchange rate. Exchange rate management cost significant money, which flew to Belarus' international reserves irrespective of the significant changes in fundamental economic development factors, including foreign ones. 

The concept of the new credit programme we discuss now with the Belarusian side is that the country needs to change and reduce subsidies to state-owned enterprises. They should raise loans on market conditions. 

It is clear that not all companies will survive without state support because its recipients include ineffective companies. This will lead restructuring and, possibly, liquidation of ineffective companies. It is obvious that finding a solution to this situation will be hard and painful, but it is necessary to improve the efficiency of the Belarusian economy. 

We also talk today about reforming the tariffs for paid services in Belarus. They need to reach a level where the cost of residential, utilities and transport services will be fully covered by the population. The government cannot subsidise these tariffs for ever because the capability of the Belarusian budget is limited. The programme envisions their gradual increase. 

BelaPAN - Have you discussed the exchange rate policy and international reserves with the Belarusian authorities? 

Dmitry Pankin - Yes, sure. Our experts believe that under the credit programme Belarus' international reserves should be increased to a level equivalent to 2.5 months of import and this condition gave rise to certain discussion. 

We also believe that the exchange rate must not be maintained artificially because this depletes the reserves and does not fit market principles. 

We see that the Belarusian side understands all the issues we raise with respect to the credit programme. We can say that the key points of the new credit programme have been agreed. 

BelaPAN - Under the previous credit programme with the Fund, which was implemented in 2011-2013, Belarus failed to fulfil some of its obligations and, as a result, did not receive the sixth tranche of the credit. What mechanisms do you propose this time to ensure that the new credit programme is performed in full? 

Dmitry Pankin - To fulfil the new credit programme successfully, we proposed a set of measures to adjust economic policies. These measures will be used as necessary. Their main objective is to balance domestic demand. 

BelaPAN - Mr Pankin, you were involved with loans to Belarus in the 2000s, when you were Russia's deputy finance minister. Later, funds for Belarus were provided by the EurAsEC Anti-Crisis Fund, which was renamed as the EFSD this year. In your opinion, to what extent was Belarus' management of loans raised in recent seven to eight years efficient? 

Dmitry Pankin - In my opinion, a significant portion of resources was used to stimulate the Belarusian economy. Its peculiar feature is that the economy is extremely dependent on the state and the resources received were used to support state-owned enterprises, the exchange rate, economic growth rates, and population's income. 

This practice required continuous borrowing and, in the end, resulted in the accumulation of the public debt. At the same time, structural reforms, which would make it possible to balance the economy and use domestic resources effectively, have not been fulfilled. For this reason, the task of Belarus is major economic restructuring. 

BelaPAN - Do you mean that the model of the Belarusian economy needs to be reformed at large? 

A.: Yes, I mean the model. I don't mean an upgrade such as the construction of new plants. The task is to form another economic model, which would make it possible to effectively use available resources and, among other things, foster the development of small and medium-sized enterprises. 

BelaPAN - The Belarusian government has been conducting negotiations since this spring on raising another loan from the IMF and is discussing the roadmap for economic restructuring with the Western lender. As far as we know, the IMF is of the opinion that key reforms in Belarus may be fulfilled within twelve to eighteen months and there's no sense in spreading them over five years. What is your position on this? 

Dmitry Pankin - There are no principal disagreements between us and the IMF on the set of measures for Belarus. In our opinion, the main reforms your economy needs can be implemented within a year or two. Our recommendations do not include any steps, which would require five years for fulfilment. 

We acknowledge that some measures are sensitive for the population, but these issues should be solved by means of targeted social support. 

BelaPAN - Since 2012, when Belarus limited domestic demand to ensure macroeconomic stability, GDP growth in the country did not exceed 1.7%. This year the IMF stated that if reforms are fulfilled the country's GDP can grow sustainably, at 5-7%. How do you estimate the effect of reforms that Belarus may expect? 

Dmitry Pankin - In the medium term, reforms will speed up economic growth in Belarus, but in the short term reforms almost always result in problems and GDP may even go down because of them. 

It is not impossible that this year the fall in Belarus' GDP may be even more significant than in Russia. Russia can stimulate its domestic demand with reserves while in Belarus this capability is more limited. However, if the country proceeds with reform, it should expect sustainable economic growth in the medium term.

Source:  IA BelaPAN