Main Risks for Belarussian Economy and Prospects for Belarus-IMF cooperation

Transcription

1 Main Risks for Belarussian Economy and Prospects for Belarus-IMF cooperation Workshop Economic Environment for Businesses Minsk, December 14, 216 Bas B. Bakker Senior Regional Resident Representative for Central and Eastern Europe

2 Global growth has hovered around 3¼ percent in recent years, well below pre-crisis levels. 1 GDP growth (percent) Emerging markets World Advanced economies

3 In CESEE, non-cis is doing better than CIS 1 GDP growth (percent) CESEE non-cis European CIS

4 Indeed, significant differences in growth between CIS and non-cis CESEE 4

5 Along with Russia, the rest of CIS also suffered from recession in 214/15 Spillovers from Russia Collapse of commodity prices Sudden stop in capital flows to Russia, result of sanctions on Russia Conflict in Ukraine Change in GDP (percent) Between Between Ukraine Belarus Russia 5

6 Exchange rate depreciation increased inflation and reduced real wages CPI Inflation in European CIS (percent, weighted average) Average monthly wages (USD) 3 max USD 5 line RUS 1 BLR 5 min 25 UKR Mar-1 Mar-12 Mar-14 Mar-16 6

7 216: Russia is recovering, helped by rising oil prices. Real GDP growth in Russia, other CIS countries and changes in oil prices (percent y/y) RUS Oil prices (right axis) UKR RUS BLR

8 Belarus still in recession Demand and supply components: contribution to GDP in 216 (percent) 3 Belarus 3 Russia Ukraine 3 Exports GDP growth -3-6 Domestic demand Imports Statistical discrepancy Demand Supply -12 Demand Supply -12 Demand Supply 8

9 Forecasts for 217: global growth continues to be modest 8 GDP growth according to WEO Oct-16 (percent) World USA Euro Area

10 Forecast for 217: Non-CIS similar as 216; pick-up in CIS; Belarus still in recession 6 GDP growth (percent) BLR RUS SVN HRV HUN EST UKR CZE BGR SRB LTU MDA BIH SVK UVK POL LVA MKD MNE ALB ROM Note: CIS countries in red. 1

11 Toward a sustainable growth model 11

12 Investment to GDP ratio increased sharply in the 2s 45 Investment rate (percent of GDP) Belarus 25 SEE EU Baltics 2 CE

13 Domestic saving did not follow and external imbalances reached unsustainable levels 45 4 Investment and saving rates in Belarus (percent of GDP) Investment Saving

14 The result was several BOP crises Changes in exchange rate and official reserves Official reserves, rhs (percent of GDP) BYR/USD exchange rate (monthly changes, percent)

15 Depreciation Exchange rate has now stabilized 1 9 BYR/USD (Jan-213=1) Floating of BYR Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 15

16 How can we reignite growth? 15 GDP growth in Belarus (percent y/y)

17 Not by another investment boom; higher productivity needed 12 Contributions to GDP growth (2-year moving average, percentage points) 9 GDP growth 6 3 Capital Labor TFP 17

18 Employment rate (percent of working age pop.) What sets Belarus from other countries is not low employment, but low productivity Labor productivity and utilization, Flags size reflects GDP per capita in 215 (PPP-adjusted) Labor productivity (PPP adjusted 214 USD, thousands) 18

19 Economic efficiency may be hampered by the too limited role of the price mechanism in allocating resources Examples: Absent hard financial constraint, many state-owned enterprises are loss making Household energy prices are below cost-recovery levels 19

20 Losses SOEs create macro problem They have to be compensated by Higher fiscal expenditures Or by cheap credit (directed lending) 2

21 Simply stopping transfers may create a banking sector problem SOEs need to be restructured IMF providing TA on how to do this Strong social safety net needed to cushion adverse impact on unemployment Growth-enhancing policies, such as lending programs for privately-owned SME may help The World Bank is working on a loan/project to support SME lending. 21

22 Setting heating tariffs at cost-recovery levels and reducing crosssubsidization means lower subsidies and more incentive to use more energy-efficient technologies Source: IMF Staff Report, September 216. Methodology for calculating costrecovery in Belarus has since changed. 22

23 The goal of reforms is to create a vibrant, efficient economy Reforms can certainly be painful in the short run, but not transforming the inefficient economy can have even larger costs Example: in 1989 Poland and Ukraine were equally poor. Poland pursued transition reforms quickly, as opposed to Ukraine. 23

24 Today, Poland is three times as rich Change in light during the night between mid 9 s and , based on satellite images Note: the map shows the differences in intensity of brightness between the averages of 1992, 94, and

25 Thank you