OREANDA-NEWS. The IMF believes it is essential for Belarus that wage increases should be halted through 2014, and that directed lending should be sharply reduced, with a full phase out over the medium term.

The IMF posted a press-release to this effect after the Executive Board of the International Monetary Fund (IMF) concluded the Fifth Post-Program Monitoring Discussions with Belarus.

“In the meantime, remaining directed lending should be channelled through the Development Bank to foster the operation of state banks on commercial terms and promote better credit allocation. Directors agreed that a balanced budget is an appropriate fiscal target for next year, although a surplus should be targeted instead if insufficient progress is made towards the elimination of directed lending.”

“Directors concurred that scaling back interventions in the foreign exchange market would help narrow external imbalances and safeguard official reserves. They added that a tighter monetary stance would help contain inflationary pressures and prevent exchange rate overshooting. Furthermore, a shift to a policy framework centered on targeting base money could bolster policy credibility and help pave the way for the adoption of an inflation targeting regime over the medium term.”

“Directors welcomed recent steps to contain foreign currency lending by banks, but called for continued close monitoring of developments in this area. They recommended heightened vigilance over new deposit instruments that expose banks to exchange rate risks.”

“Directors underscored that deeper structural reforms are key to sustained non-inflationary growth. Accordingly, they welcomed the adoption of the authorities' Joint Action Plan and encouraged its timely implementation. Nonetheless, Directors emphasized the need for a much more ambitious and frontloaded reform agenda, including comprehensive price liberalization, a detailed strategy and significant initial steps for reducing the role of the state in the economy, and a strengthening of social safety nets. Directors considered that support for a new Fund arrangement would depend on Belarus' firm commitment to a comprehensive package of such reforms combined with strong macroeconomic policies.”