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PRESS RELEASE

New Engines of Development Needed to Protect Growth and Jobs in Belarus

July 10, 2012

Minsk, July 10, 2012 — A new growth strategy is needed to address major challenges that Belarus economy is facing, says Belarus Country Economic Memorandum: Economic Transformation for Growth presented by the World Bank today to policy-makers, business community, academia, donor agencies and mass media. The new report is a comprehensive assessment of Belarus’s economic growth experience over the past decade and the growth prospects moving forward.

Delivering the keynote address at the launch of the report, Qimiao Fan, World Bank Director for Belarus, Ukraine and Moldova said “The Country Economic Memorandum seeks to contribute to a policy dialogue and better informed decisions on key aspects of the country’s development agenda. During the course of its preparation, the Bank team benefited greatly from the discussions at various formal and informal forums with the representatives of government agencies and local authorities, the donor community, local research institutions, and independent experts. We believe that this report comes at a critical juncture and serves as a resource to discuss and assess the risks the country faces and identify effective policy measures, their costs and benefits.”

The report argues that a new growth strategy is needed to address the major challenges the Belarus’ economy is facing beyond the macroeconomic issue of adequately financing its external imbalances: (i) how to reallocate labor and capital to high productivity segments of the economy; (ii) how to restructure the state-owned enterprise sector; and (iii) how to support the underdeveloped private sector and the services sector.

“It is critically important to revive competitive segments of Belarus’s economy and discover untapped opportunities for growth, especially in the current volatile macroeconomic environment and a renewed uncertainty in the Euro Area,” said Yvonne Tsikata, World Bank Director for Poverty Reduction and Economic Management, Europe and Central Asia. “Going forward, Belarus’s growth model will have to rely on significant productivity gains driven by structural reforms. The report points at critical issues for the country, examines the key binding constraints and analyzes alternative growth paths.”

Chapter 1: A Growth Model in Peril concludes that the past decade growth become increasingly dependent on domestic demand propped by expansionary monetary and fiscal policies and at the expense of macro stability. The economic gains came at the expense of widened external imbalances, rapid debt accumulation and increased dependence on underpriced energy inputs from Russia. Heightened external vulnerabilities have harmed Belarus’s growth prospects for the medium term.

Chapter 2: Boosting Efficiencies in Factor Markets suggests that by fostering the efficient reallocation of capital and labor Belarus can exploit the significant productivity differences that persist across sectors and firms. The reallocation of labor and capital toward more productive sectors and the creation and growth of productive firms in the private sector are essential for achieving the objective of inclusive and sustainable growth in Belarus.

Chapter 3: Transforming the SOE Sector finds that in contrast to other neighboring countries Belarus preserved state ownership in economic activity and opted for enterprise consolidation and vertical integration. However, economic analysis suggests that despite access to economic rents for state-owned enterprises (SOE), on average, private firms in Belarus outperform the state-run ones. The success of Belarus’s economic transformation will largely depend on the success in transforming the enterprise sector.

Chapter 4: Igniting New Engines of Growth suggests that looking at countries with comparable level of development, Belarus is an outlier along three fronts: (i) the small role of the private sector in the economy, (ii) the small contribution of the services sector to the growth of the economy, and (iii) the increasing concentration of energy-dependent exports and markets. It concludes that the existing economic growth model of Belarus has reached its limits and that a new growth strategy is needed to help the country to revert the trends of declining productivity and eroding competitiveness.

Successful economic rebalancing towards a more efficient economic structure could help Belarus sustain medium-term economic growth,” said Gallina Andronova Vincelette, World Bank Senior Economist and lead author of the report. “Such a new structure would be more open to entry, operation, and growth of the private sector, including services. The latter could play a great role in generating jobs and incomes. Moreover, the new economic model would make Belarus’s exports less dependent on energy-intensive production and open opportunity for supplying competitive products to new markets”.

Country Economic Memorandum (CEM) is one of the World Bank’s core analytical reports on growth and development prospects at the country level. It is a flexible analytic instrument which structure and content is largely dependent on country circumstances.

Belarus joined the World Bank in 1992. Since then, the Bank’s lending commitments in Belarus have totaled US$865 million for 12 projects; about thirty national programs received grant financing totaling US$22.8 million. Along with funding, the Bank provides economic and technical advice to inform the government’s structural reform efforts to lay the foundation for sustainable economic recovery.

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PRESS RELEASE NO:
2012/07/10/ECA/BY