Restoring Economic Growth by Appropriately Sequenced Reforms

November 2, 2015

Minsk, November 2, 2015 – Appropriately sequenced reforms can address long-standing structural inefficiencies and spur growth over the long run, according to the World Bank’s Economic Update for Belarus. The economy needs far-reaching institutional changes which can positively affect enterprise performance, support innovation, and help open new markets for Belarusian products. These include, among others, strengthening managerial autonomy, building better mechanisms for skills upgrade, introducing incentives at management- and factory floor level, and further improving the business climate.

The economy is expected to contract by 3.5 percent in 2015 and by 0.5 percent in 2016 due to weak external and domestic demand. The Authorities are prudently avoiding demand stimulation to allow for necessary macroeconomic adjustment to run its course. Despite the fact that current account deficit is narrowing due to weakened demand for imports, significant external financing is required to meet large foreign debt repayment needs.

It is also crucial to enhance the existing social safety net to mitigate adverse consequences on the poor during macroeconomic adjustment and reorientation of the economy. The growth outcomes of adjustment policies will take time to materialize, but immediate actions are necessary to steer the economy away from the current stagnation.

The purpose of a comprehensive reform is to remove structural constraints which have prevented the Belarusian economy from realizing its maximum potential. If the set of key reforms being considered can lead to efficiency, profitability, sustained technological progress at all levels of production sphere, there is no reason why we cannot expect to see Belarus’ per capita income to double in the medium term. These types of reforms which address inefficiencies at their roots do not deliver high growth straightaway, and often require short-term sacrifices to be made. A shared sense of responsibility and support for the reforms by each member of the society are often determining factors for successful outcome. Without deep reforms, however, the recession could be deeper, longer, and prone to repeating itself’ - said Mr. Young Chul Kim, World Bank Country Manager for Belarus.

A Special Focus Note on The Impact of WTO Accession on Belarus shows that full WTO membership could generate substantial income growth. Welfare gains stem from the reductions of discriminatory and especially non-discriminatory barriers against suppliers of services. The expected improvement in the performance of service sectors after WTO accession will be important not only because the services sector itself remains small in terms of value added and exports, but also because services are critical inputs for many other sectors. Enabling the competitive provision of financial, transport, logistical, communication and other business services is an important pillar of an overall strategy to strengthen competitiveness, especially of the tradable sector. Moreover, the WTO process could provide an important anchor for structural and regulatory reforms to boost service sector development.

Export diversification is naturally an important objective when demand in traditional markets is declining, but Belarusian companies will have to quickly acquire new competencies in market entry and export product development. As the Government is accelerating its negotiations with the WTO, it is critical to put in place an effective adaptation and support strategy that will build knowledge about new world markets, enhance competitiveness, and product appeal to consumers. With the eventual WTO accession, Belarus must do all it can to take full advantage of more open market access’, – stressed Mr. Ruslan Piontkivsky, World Bank Senior Economist.

Since the Republic of Belarus joined the World Bank in 1992, lending commitments to the country have totaled US$1.48 billion. In addition, grant financing totaling US$28 million has been provided to various programs, including those with civil society organizations. With the approval of this project, the active investment lending portfolio financed by the World Bank includes eight operations totaling US$988 million.

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