WASHINGTON (Reuters) – Western sanctions are squeezing Belarus’ economy and limiting its financing options, International Monetary Fund staff said on Monday, recommending that Minsk cut fiscal expenditures to reduce its foreign-currency borrowing.
The IMF said in a staff statement following the first Article IV economic consultations with Belarus in three years that the country’s growth is expected to reach about 2% this year, with inflation hovering around 10%, driven by currency depreciation and higher global commodity prices.
The Fund said it is forecasting Belarus’ 2022 real GDP growth at just 0.5%, with activity held back by the lingering effects of the COVID-19 pandemic, limited space for policy stimulus and the effect of external sanctions.
“Risks to this outlook are large and revolve around geopolitical tensions, the possibility of further waves of COVID outbreaks, the impact of international sanctions, and contingent liabilities in the public sector,” the IMF said. “These major risks make a strong case for careful contingency planning.”
The IMF said sanctions have limited financing options, leaving authorities little choice but to significantly reduce the fiscal deficit, estimated at 3.1% of GDP for 2021. It said this would likely fall to 2.1% of GDP in 2022, partly due to the completion of construction of a nuclear power plant.
The report noted that the government intends to keep in reserve a nearly $1 billion allocation of IMF Special Drawing Rights, which has boosted the country’s reserves at a “relatively low level” of $8.5 billion, enough for to pay for 2.3 months of imports.
The SDR allocation, part of a $650 billion global allocation of IMF monetary reserves, drew concerns that the move aided the government of president Alexander Lukashenko, on which Western countries have imposed sanctions over allegations that it rigged elections and cracked down on opposition.
In response, Belarus and Russia, also facing Western sanctions over its treatment of Ukraine, have sought to deepen economic integration, agreeing in September to set up a unified oil and gas market.
The Fund said the current sanctions limit space for rolling over expiring debt and new borrowing on Eurobond markets.
“Although the authorities can continue to borrow on other markets, institutions and countries, a further reduction of the fiscal deficit in 2023 would alleviate pressure to issue new debt,” the IMF said. “A key concern is that 93% of public debt is denominated in foreign currency and thus vulnerable to exchange rate movements.”
Contingent liabilities from state-owned enterprises and banks also could drain public finances, and the IMF said the Belarussian central bank should wind down loan forbearance and other support measures and reinstate pre-pandemic financial regulatory norms.
(Reporting by David Lawder, Editing by William Maclean)