IMF Asks Belarus to Embark on Policy Overhaul to Qualify for Aid

Belarus must commit to a “consistent strategy based on stabilization and reform” to secure financial aid, the International Monetary Fund said after completing a mission to the former Soviet republic.

“Program negotiations would require agreement among all policy makers -- including at the highest level -- to adopt a comprehensive package to restore stability and to embark on the path of deep structural reform,” the Washington-based lender said in a report on its website today.

A Russian-led $3 billion bailout helped the nation emerge from last year’s balance-of-payments crisis, with the government also ceding ownership of its gas-pipeline network to OAO Gazprom for $2.5 billion. The central bank raised the refinancing rate 12 times last year to contain inflation that soared to 108.7 percent as the ruble depreciated 64 percent against the dollar, its worst drop since 1999.

Belarus wants to borrow $3.5 billion from the IMF to refinance its existing debt. The country will have the means to repay its outstanding IMF debt even without the new loan, central bank Chairman Nadezhda Ermakova said May 3.

“Belarus’ capacity to repay has become strained due to a sharp increase in debt in recent years and policies should be geared toward enhancing it,” the IMF said in the report. The country’s request for a new credit arrangement, submitted in May 2011, “remains active,” it said.

The east European nation’s external debt has surged to 61.4 percent of gross domestic product last year from 25 percent in 2008, the IMF said. The lender projects that Belarus’s debt relative to economic output will “only gradually” slide to 56 percent of GDP by the end of 2017.

The government’s plans to bolster growth and raise wages may re-ignite inflation and “call into question medium-term viability and capacity to service external debt,” according to the IMF.

“The authorities have been doing most of the right things, but cannot commit to give up growth and wage targets that are inconsistent with stability,” the IMF said. “The authorities have made progress in establishing stability. However, risks remain.”

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