OREANDA-NEWS. February 09, 2010. Despite subdued output and high vulnerability to external shocks, Belarus starts to emerge from the crisis. At the same time, macroeconomic stability remains fragile and needs to be reinforced, the IMF said in a staff report on the third review under the Stand-By Arrangement.

“Output remains subdued, and Belarus remains highly vulnerable to external shocks, given its high current account deficit and still low level of reserves. However, there are several encouraging signs.”

Export volumes have stabilized and are projected to recover. The exchange rate depreciation during the year has improved competitiveness, while confidence appears to be growing among households, as evidenced by the partial reversal of currency substitution.

“Fiscal policy has been consistent and strong, and the inconsistencies in the authorities’ credit policies are being addressed.”

However, macroeconomic stability remains fragile and needs to be reinforced by strong and consistent policies. Pressures on the budget from local governments and line ministries will need to be resisted firmly.

The edifice of credit under government programs channeled through commercial banks and financed by below–market rate refinancing from the NBB needs to be dismantled, and the new agency designed to achieve this needs to be established quickly.

The authorities and staff discussed structural reforms that could support growth in the medium-term. At present, the authorities plan to focus on structural reforms which would help them in (i) removing factors systemically undermining macroeconomic stability, (ii) allowing market forces to play a bigger role in resource allocation, and (iii) reducing barriers for private business.

“The authorities requested assistance from the IMF and the World Bank to prepare a strategy for developing a market-based incentive system,” the report reads.