A classic balance of payments crisis
Overview:
The Belarusian economy has performed reasonably well for years despite the lack of significant structural reforms due to large energy subsidies from Russia. However, as these are now being phased out the authorities are now looking to move to a more market-based economy. The response to the global economic crisis – a surge in directed lending – has cushioned the economic downturn but at the cost of exacerbating the current account deficit and increasing the share of non-performing loans in the banking sector. A devaluation of the currency and tight monetary and fiscal policies to offset the inflationary impact of such a move are orthodox policy responses to a large external shock. However, directed credit must be restricted and price liberalization and privatization furthered to improve long-term output growth.