The recovery of the Belarusian economy is slowing down, according to the World Bank’s latest Economic Update for Belarus. This is due to low productivity growth and deteriorating external conditions
The outlook for the medium-term remains weak, lower 2%, due to a combination of domestic structural rigidities and stagnating traditional markets for manufacturing and agricultural exports.
Reasons and what to do?
The World Bank notes that such a modest forecast for the GDP partially depends on the uncertainty about Russia’s tax maneuver.
The tax maneuver implies a loss of export duties on oil products, which are currently credited to Belarus budget, as well as higher prices for raw materials for Belarusian oil refineries.
Although macroeconomic indicators, such as inflation and the current account deficit, have improved, rising public debt, largely in foreign currency, pose risks to economic development.
The uncertainty about Russia’s tax maneuver and bilateral trade relations should be taken into consideration too, the experts believe.
Alex Kremer, World Bank Country Manager for Belarus, explains: “It is essential to strengthen competitiveness and, thus, export more products to a wider range of countries.
Further improving the business environment, and intensifying the restructuring of companies, especially state-owned companies, would help producers innovate and export more.
Otherwise, the only way to address public debt is to cut government spending and raise taxes.”
The Update emphasizes the need to strengthen social safety nets that protect the most vulnerable, uphold living standards, prevent a rise in poverty, and help people with job mobility.
Positive notes and recommendations
A key recommendation of the report is the need to increase the share of expenditure on social assistance that targets low-income groups in the population.
Nithin Umapathi, Senior Economist at the World Bank said: “Belarus achieved remarkable progress in poverty reduction during its ‘high-growth’ period of 2003-2013.
But with growth set to slow in the long-run, social resilience and poverty prevention are more important than ever.” He also pointed out weaknesses and proposed several solutions.
“One of the weaknesses of the existing safety net is that many poor working households are not benefiting from current means-tested support programs.
This can be tackled by expanding the coverage and generosity of the monthly Targeted Social Assistance Program (GASP)”.
Among other positive moments mentioned were the measures to liberalize economic activity and growing exports of ICT services that contribute to stronger foreign trade.
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