Severe balance of payments pressures
Overview:
Belarus has obtained Executive Board approval for the first review of its Stand-By Arrangement (SBA) with the IMF. This secures a US$680 mn disbursement and the augmentation of the program from US$2.5 to US$3.5 bn. Despite this, the balance of payments will remain under severe pressure. The trade balance deteriorated dramatically in Q1 2009 and foreign exchange reserves are extremely low. The large devaluation of the ruble and the move to a more flexible exchange rate regime are timely. Even so, tight monetary policy will be needed to reduce inflation and restrictive fiscal policies implemented to reduce demand for imports in order to put the external accounts on a more stable footing. Structural reforms will also need to improve competitiveness as energy subsidies from Russia continue to be phased out.