The EFSD Council approves a financial credit for Belarus
Moscow, 28 March 2016. — On 25 March 2016, the Council of the Eurasian Fund for Stabilisation and Development (EFSD) approved a US $2 billion financial credit for Belarus. The funds will be provided in seven tranches over 2016-2018. The first, US $500 million tranche will be extended in the next few days since Belarus has complied with all the key conditions precedent to obtaining it. The other six tranches will be provided as respective conditions are met, including two tranches in 2016, three in 2017, and one in 2018.
The credit will support the reform programme of the Government and the National Bank of Belarus, comprising two large economic blocks: the creation of macroeconomic preconditions for economic growth, and market reforms to ensure its stability.
To attain macroeconomic stability, including inflation and gross international reserve targets in the context of price liberalisation, the programme envisions tougher control over money supply, a flexible foreign exchange policy, and the achievement of a zero-deficit budget. Monetary indicators are expected to be achieved by continuing the monetary targeting policy. This policy, coupled with the flexible, double-auction exchange rate policy, has proven to be effective in countering inflation and has helped to stabilise the foreign exchange market and international reserves. External balances will be strengthened by achieving a zero-deficit budget by means of subsidy reductions. These will be ensured, in particular, by improving paybacks in the utilities sector and decreasing interest rate compensations in directed lending schemes, as well as by maintaining moderate growth in budget expenditure on salaries.
Structural policy measures envision that the utilities costs will pay back to a greater extent through tariffs for the population. Paybacks are expected to rise from 30% as at the end of 2015 to 70% as at the end of 2017. This will make it possible to cut subsidies for the utilities enterprises, optimise consumption by the population, and decrease cross-subsidies, which is an important factor for improving the country’s economic competitiveness. Directed lending is expected to decrease by 1% and 2% of GDP in 2016 and 2017, respectively, to ensure a better use of commercial banks' resources and reduce liquidity and credit risks. This, coupled with price liberalisation, the abandonment of prescriptive performance indicators for state-owned enterprises, the reduction in the accumulated gap between the growth in real wages and labour productivity, measures to boost business initiatives, decreases in businesses' regulatory costs, and fostered privatisation, will help to enhance potential for economic growth. In addition, the programme aims to strengthen and introduce new social support mechanisms for vulnerable groups of the population during the period of structural reforms.
The measures taken during the programme's first tranche helped to stabilise key monetary, fiscal and foreign trade indicators and lay a foundation for long-term structural economic reforms. As at 1 March 2016, the 12-month inflation went down to 12.8%, compared to 16.7% a year before, reflecting the results of the country's tougher monetary policy and significant decreases in global prices. Disinflation occurred when the prices of socially important goods were liberalised and the share of regulated goods in the CPI basket was halved. As at 1 March 2016, the country managed to stabilise its gross international reserves at a level of 1.5 months of imports (provided that the indicator will grow to 2 months of imports by the end of the programme). Gross international reserves were increased by restricting growth in directed lending schemes by more than two times, and increasing payback in the utilities sector from 29.5% in 2014 to 40% as at the end of February 2016.
The measures also helped to form a higher budget surplus for public administration bodies, reaching 0.4% of GDP (including adjustments for transactions with public debt securities aimed at solving financial problems of state-owned enterprises and recapitalising state-owned commercial banks), compared to a deficit of 1.4% of GDP in 2014, and its growth to 4.9% of GDP in January-February 2016, compared to 2.8% in the previous year. The current account deficit in 2015 was US $2 billion (-3.7% of GDP), compared to US $5.2 billion (-6.9% of GDP) a year before.
Taking into account that developments in external markets remain highly uncertain, as do possibilities for raising additional funds, the government is ready to adjust its economic policy as may be necessary.
Additional Information:
Eurasian Development Bank (EDB) is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth, and the expansion of mutual trade and other economic ties in its member states. EDB's charter capital totals US $7 billion. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation and the Republic of Tajikistan.
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The Eurasian Fund for Stabilisation and Development (EFSD) amounting to US$8.513 billion was formed as the EurAsEC Anti-Crisis Fund on 9 June 2009 by the governments of six countries: Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan. The objectives of the EFSD are to assist its member countries in overcoming the consequences of the global financial crisis, ensure their economic and financial stability, and foster integration processes in the region. The EFSD member countries signed the Fund Management Agreement with Eurasian Development Bank giving it the role of the EFSD Resources Manager.
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