News & Analysis

World Bank: Belarus needs new sources of economic growth

The World Bank has urged Belarus to initiate structural reforms of its state-owned companies to ensure new sources of economic growth and social protection for Belarusians, Belsat TV has reported.

Alex Kremer (pictured above), the head of the World Bank’s Belarus office, said that the factors which have until now contributed to the country’s economic growth, including borrowing from abroad, improvements in commodity prices and Russia’s rapid growth, were not going to continue. “Belarus needs to find stronger, internal sources of economic growth,” he continued.

“The recent improvement of the investment climate and the dynamism of the IT sector are going to help,” he said. However, he added that the size and inefficiency of the state-owned enterprises (SOEs) that provide jobs for close to half of Belarusians remains a major problem and was leading to rising foreign debt.

Mr Kremer noted that the Belarusian government has already started cutting the financing of SOEs, with support for them having decreased from 9.5 per cent of GDP in 2015 to 1.5 per cent in 2018. While some SOEs will have to be privatised, some need to be closed, he said, adding that new jobs can and have to be created in the private sector, while social protection could be strengthened by top-ups from the state.

“Private enterprise is growing, but it could grow a whole lot faster if some basic problems were addressed,” he said, pointing to the differing attitude of regulators towards SOEs and private enterprises, as well as to the unpredictability of legislation applying to private businesses.

The World Bank representative also stressed that government subsidies allowing Belarusian citizens to pay less for their heating costs makes companies less competitive and amounts to a large share in the country’s foreign debt. “Heating tariffs are going to have to increase,” he said, adding that people on low incomes can be protected by strengthening the housing and utility subsidy.

“If Belarus undertakes these structural changes, it will emerge afterwards stronger, more prosperous and more economically independent with a perspective of higher living standards,” he concluded.