IMF Believes State-Owned Enterprises Must Be Reformed

emerging europe belarus outlook ebrd

Read the Outlook on Belarus special report

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The International Monetary Fund (IMF) is convinced that postponing reforms in Belarus would cause more problems than conducting them.

“Reforms are aimed at the creation of a sustainable and effective economy. Reforms can be painful but their absence will cause even bigger issues,” Bas Bakker, the IMF’s senior regional representative for Central and Eastern Europe said, in Minsk, in November.
He also explained that in the 2000s, economic growth in Belarus was secured by the high level of the state investments. Thus, the share of investments against the GDP grew from 25 per cent in 2000 to 42 per cent in 2010. Nevertheless, he said, “the high level of investments wasn’t stable, unfortunately.”

The state’s high investment activity led to the emergence of the current account deficit in the balance of payments and the subsequent devaluation of the national currency. Although the authorities have managed to stabilise the rate of the national currency, in recent years, and have decreased inflation, the country still remains in a recession.
Reforms aimed at increasing the effectiveness of the economy would help to renovate economic growth in Belarus. “In the past, Belarus received energy subsidies; nowadays economic growth should be based on improving productivity,” Mr Bakker said.

There has been a positive effect of reforms on the experience of the neighbouring countries. According to Mr Bakker, the revenues of the peoples of Poland and Ukraine were equal, in 1989, but today the incomes of the Poles, who agreed to conduct a series of economic reforms at the time, are three times higher than in Ukraine. “We sincerely hope we will be able to help Belarus to conduct the reforms,” Mr Bakker said.

He believes that Belarus remains poor not because it lacks resources but because they are spent irrationally. In particular, the growth of effectiveness is limited by the non-effective state enterprises and by an ineffective mechanism for resources’ allocation.
The Belarusian state-owned enterprises are challenged by losses, which are now planned to be covered either by means of the budget, that will reduce its financial capabilities, or through policy loans, which will provoke a new wave of devaluation.

“In order to eliminate losses, it is necessary to reform state-owned enterprises,” he said and added that Belarus should create mechanisms of social protection for those people who may lose their jobs in the state enterprises, as well as create conditions for attracting investments.

This is an abridged version of an article published by Charter97.org.

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