A high rate of economic growth in Belarus – an average of about 8% annually from 2001 to 2011 – has helped reduce poverty almost seven-fold. A favorable external environment supported the economic growth in Belarus. Read More »
Until 2008, Belarus was a strong growth performer in a fast growing region. During 2001–08, Belarus’s GDP grew on average by 8.3 percent annually, more rapidly than both the Europe and Central Asia region (5.7 percent) and the Commonwealth of Independent States (CIS) (7.1 percent). Rapid economic growth was propelled by a combination of favorable external factors, including strong export demand by key trading partners (the CIS region, especially Russia), underpriced energy imports from Russia, and large terms of trade gains stemming from exporting goods such as oil products and fertilizers, which saw steep price increases, especially in the years prior to the global economic crisis. The strong growth record, however, was associated with growing macroeconomic vulnerabilities. External imbalances started to emerge in 2006 and the current account deficit began to widen, as Russia started to gradually move towards market-based pricing of its energy exports to Belarus.
Growth slowed down substantially in the context of the global economic crisis of 2008–09, and since then, the country has gone through a period of recurring macroeconomic instability. The 2008 global economic and financial crisis was transmitted to Belarus primarily through lower export demand and reduced access to external borrowing. Growth dropped to 0.2 percent in 2009. The Government’s initial response in 2009 involved an external adjustment through tight macroeconomic policy and a one-off adjustment of the exchange rate, supported by external financing, including from the International Monetary Fund (IMF). However, initial stabilization gains achieved in 2009 were reversed by expansionary fiscal and monetary policies, including a fast credit expansion under government-directed lending programs that fuelled a rapid but short-lived economic recovery in 2010. This recovery came at the expense of a further deterioration of the current account deficit to 15 percent of GDP in 2010, and heightened pressure on the exchange rate and foreign exchange reserves. After a period of multiple exchanges rates, the Belarusian rubel (BYR) lost close to 70 percent of its value relative to the USD and inflation soared to 109 percent in 2011.
As of early 2013, initial macroeconomic stability had been restored. Tight monetary and fiscal policy in late 2011 and through 2012 helped to contain inflation to less than 22 percent in 2012. The nominal exchange rate has stabilized and appreciated modestly in 2012. While the devaluation boosted non-energy net exports in 2011, significant terms of trade gains related to a new favorable energy trade agreement with Russia helped to improve the energy trade balance in 2012. The trade deficit improved from 13.3 percent of GDP in 2010 to 3 percent of GDP in 2011, and moved into a surplus of 4.6 percent of GDP in 2012. This in turn eased pressure on the current account, which improved to a deficit of 9.4 percent by the end of 2011 and to a deficit of less than 3 percent of GDP in 2012.
Macroeconomic stability, however, continues to be fragile and significant risks remain. Imbalances could reemerge in the event of renewed fiscal and monetary expansion. With the rise in consumer prices in Belarus remaining above the level of most trading partners, real exchange appreciation is already eroding the competitiveness gained in the devaluation. In addition, the country faces significant external refinancing needs. Belarus has largely relied on external debt to finance its current account deficit, with limited foreign direct investment.
Over the past decade, rapid economic growth translated into remarkable progress in poverty reduction, although the recent crisis was associated with a modest poverty increase. The absolute poverty rate (national poverty line) declined from 30 percent in 2002 to about 11 percent in 2006, and it was more than halved in recent years, falling from 11.1 in 2006 to 5.4 percent in 2009. It remained almost stable at 5.2 percent in 2010, but increased to 7.3 percent in 2011, as a result of declining real incomes in the context of high inflation in 2011, and gradually improved to 6.3 percent in 2012.
Nevertheless, the macroeconomic crises of the past years have revealed deep structural constraints in Belarus’ state-centered economic policy model. Given the dominance of state-owned enterprises, the private sector and especially small and medium-sized enterprises remain marginalized. The economy continues to depend on energy- and resource-intensive exports. At the same time, productivity growth in non-energy sectors has been stagnating, especially in the state-owned sector.
Belarus joined the World Bank in 1992. The current investment lending portfolio includes 6 operations for a total amount of US$547.7 million. Since Belarus joined the World Bank in 1992, commitments to the country have totaled US$955 million for 13 projects. About 30 national programs have received grant financing totaling US$23.7 million.
The ongoing World Bank Group Country Partnership Strategy for Belarus guides the World Bank and the International Finance Corporation support to Belarus from 2013 through 2017.
In the next four years, the World Bank Group’s assistance to Belarus will be concentrated in three areas:
Increasing competitiveness of the economy by supporting structural reforms, including reducing the role of the state, transforming the state-owned enterprises sector, and promoting private and financial sector development and integration into the global economy.
Improving quality and efficiency of public infrastructure services, use of agricultural and forestry resources and increasing global public goods benefits.
Enhancing human development outcomes through better education, health and social services.
The new strategy builds on rigorous analytical work and an analysis of Belarus’s key development challenges, and is aligned with Belarus development priorities and commitments. Based on lessons learned during the implementation of the previous Country Assistance Strategy, the Bank suggests a calibrated approach to financial assistance in sectors with an adequate or improving policy framework, strong implementation capacity, and a track record of successful cooperation in the past. Analytical and advisory support is being provided in important policy areas critical to creating consensus and building capacity in the country. Instruments will be developed to engage beneficiaries and civil society in monitoring the provision of services in projects supported by the World Bank Group in Belarus.
The World Bank-supported programs have delivered important development results already in the environment, energy efficiency, and provision of public services. For example, as a result of Bank support:
Pupils, teachers, doctors, and patients are now receiving upgraded and more reliable utility services in 1,000 social sector buildings in all regions of Belarus;
1,800 tons of stockpiles of persistent organic pollutants were eliminated;
System of Integrated Environmental Permitting contributing to the reduction of emissions and pollution was designed and the first National Inventory of Greenhouse Gas Sources and Sinks was prepared;
85 civil society initiatives have received Bank grant support to implement small projects that promote development, dialogue, and cooperation at the community level.
Other expected results are:
Upgrade of 53 kilometers of a road located between Minsk and Bobrujsk from a two to four-lane motorway by 2014 will reduce transport costs for road users by 6 percent and save at least seven human lives a year;
Construction of a modern mechanical waste separation plant in Grodno will prevent burying 20,000 tons of waste in the landfill by the end of the project. A related public awareness campaign will result in the participation of 80 percent of Grodno residents in a waste source separation program by 2016, up from 16 percent before the project;
300,000 people living in 20 districts across the country will be connected to clean and reliable water services by 2014;
Conversion of six heat-only district heating plants to combined heat and power plants (with two of the plants based on gas engine technology completed in 2012 and one to be commissioned in 2013) will allow the saving of 90 million cubic meters of natural gas annually by 2014. The efficiency of heat and power generation at project sites will increase by about 30 percent.