Overview

Strategy

The World Bank Group Country Partnership Strategy (CPS) for Belarus for the period 2013–17 guides both World Bank and International Finance Corporation (IFC) support to the country. Belarus’ portfolio has grown rapidly since the ap­proval of the CPS, from US$457.5 million in June 2013 to US$973.2 million as of April 1, 2017.

World Bank Group assistance to Belarus is con­centrated in three areas:

• increasing the competitiveness of the econo­my by supporting structural reforms, including reducing the role of the state, transforming the SOE sector, and promoting private and financial sector development and integration into the global economy;
• improving the quality and efficiency of public infrastructure services and the use of agricultural and forestry resources, and increasing global public goods benefits; and
• enhancing human development outcomes through better education, health, and social services.

KEY ENGAGEMENT

World Bank–supported programs have delivered important development results with respect to transport infrastructure, water supply, waste management, energy efficiency, and public services. For example, 53 kilometers (km) of road between Minsk and Bobrujsk have been upgraded from a two- to four-lane motorway, reducing transport costs for users and lowering road accidents. In addition, pupils, teachers, doctors, and patients now receive upgraded and more reliable utility services in 1,000 social sector buildings in all regions of Belarus.

Other expected results are:

• Construction of a modern mechanical waste separation plant has been completed in Grodno and is under the testing phase, and a public awareness campaign will result in the participation of 80% of Grodno residents in a source waste separation program by 2017, up from 16% before the project.
• 324,000 people living in 20 districts across the country will be connected to clean and reliable water services by 2018.
• 243,000 people will benefit from energy efficiency in heat and power generation by 2017.
• 145 megawatts of additional electric capacity from modern gas turbines is being installed, and the efficiency of heat and power generation at the project sites will be increased by 15–30% by 2017.
• 79,000 Belarusians living in 13 towns will benefit from the efficient use of renewable biomass in heat and electricity generation by 2019. The cost of the heat supply is expected to be reduced on average by 63% in these towns.
• 154 km of road linking Minsk and Grodno will be upgraded by 2019.
• 4.5 million hectares of forests outside protected areas will be managed as biodiversity friendly by 2020.
• By 2018, Belarus will participate in the Program for International Student Assessment (PISA), the internationally comparable system of evaluating student learning.
• The e-Health system will soon become operational, and by 2022, the BelMAPO simulation center for the improvement of health care provider competency in noncommunicable disease management will be established and a modern neonatal department constructed.

Economy

Recent Economic Developments

In 2016, the economy continued to contract, albeit at a slower pace, as tight fiscal and monetary policies helped to support macroeconomic stabilization. In 2016, real GDP decreased by 2.6% compared to 3.8% in 2015. Goods and services exports continued to decline—by 9.3% year-on-year (y-o-y) in nominal U.S. dollar terms in contrast to 24.3% in 2015—due to persistent weak external demand and a 21% cut in crude oil supplies from Russia resulting from a gas price dispute.

Domestic demand remained suppressed and final consumption fell dramatically, while further cuts in directed lending and public capital expenditures continued to dampen gross fixed investments.

In 2016, households lowered their consumption by 3.9%, while gross capital formation fell by 16.7%, both in real terms. At the same time, agriculture and a number of manufacturing sectors have registered growth in recent months.

The ongoing recession has put additional pressures on the external and fiscal accounts. The current account deficit amounted to 3.6% of GDP in 2016, driven by growing trade and primary income deficits (with interest and dividend payments at 4.5% of GDP).

Household wealth continues to deteriorate amid a weak labor market. A 30% increase in utility prices has eroded the purchasing power of the bottom 20% and bottom 40% of households. In 2016, net job creation was negative and the number of employed persons shrank by 2.2%. Real wages fell by 4% relative to 2015 and by more than 6% in some regions (Gomel and Grodno).

Real disposable incomes were down by about 7% y-o-y everywhere except Minsk and its oblast, where the fall was about 4% y-o-y. So far, the rise in official poverty has been small—by 0.6 percentage points between the first and fourth quarter of 2016—contained by a 10% annual increase in spending on targeted social assistance.

Economic Outlook

The economic recovery is expected to remain weak and gradual as negative feedback loops continue to subdue domestic demand. Economic stabilization measures of 2015–16, including greater exchange rate flexibility, directed lending restrictions, and  monetary and fiscal tightening, set important preconditions for growth.

However, some necessary adjustment measures—including further planned cuts in directed lending—will continue to have a negative drag on growth. Policy efforts to stimulate the short-term demand will be limited by financial and fiscal pressure, including a possible need to recapitalize state-owned banks and costs associated with SOE restructuring.

The poverty rate—measured at US$5/day at purchasing power parity (PPP)—is projected to increase slightly during 2016–17 due to a combination of weak labor market conditions and higher unemployment associated with transformations in the SOE sector and related structural adjustments in the labor market. Increases in utility tariffs to a full cost recovery by the end of 2018 would require more robust mitigation measures by improving the targeting of the existing household utility subsidy program.

The recovery is likely to be long and slow, but it needs to be anchored on key structural reform measures. One is the establishment of a robust and sustainable unemployment benefit system and enhanced support for job mobility that could provide a cushion against demand-dampening inequality and poverty. SOE restructuring also remains essential in creating a new foundation for a sustainable growth trajectory.

Highlighted Project

Innovative Transport Solutions

Belarus serves as an important transit corridor for the region. Well-kept roads connect people to public amenities and reduce travel time, vehicle operation costs, and accident risks. The World Bank has helped Belarus to upgrade 53 km of a highway segment between Minsk and Gomel, and over 154 km of the high­way linking Minsk and Grodno will be upgraded by 2019.

To maintain safe, efficient road networks and to improve their operation, the authorities need reliable, standardized, and timely data on road conditions and traffic volume. However, collecting such information through conventional methods is costly and time consuming. In the past two years, the Belarusian Road Engineering and Technical Center has teamed up with the Bank and developed a smartphone app called “Roadlab,” which links drivers to road maintenance authorities and allows for the automatic collection of data on pavement roughness. The success of this experiment led to the adoption of the software in other regions where World Bank road projects are being carried out.

Belarus: Pathways to Growth and Prosperity

Protecting road assets and effectively controlling truck weights are important aspects of safeguarding road infrastructure, ensuring safety, and reducing green­house gas emissions. As a transit country, Belarus has a large number of local and foreign trucks traveling on its road network. Recently, the Government implemented microwave-based e-tolling and a weigh-in-motion system (WIM) to link with the existing e-tolling system.

This state-of-the-art WIM system, financed under the Road Upgrading and Modernization Project, will help to reduce overloaded trucks on Belarusian highways. It includes 12 WIM sites, four fixed heavy vehicle inspection centers, and eight mobile stations, with locations strategically distributed throughout the network. WIM control sites process raw data locally and send information on weighed vehicles to the central system unit or to mobile stations and Transport Inspection patrols.

The processed “weighing results” contain all the needed information, includ­ing time, direction, lane, weight, vehicle plate number, type of vehicle, country of origin, speed, dimension, number of axles, air temperature, etc. The Ministry of Trans­port and Communications in Belarus has also started to use such data to analyze traffic density and traffic patterns by time and location.

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Briefs on active projects in Belarus (PDF)