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Belarus deputy economy minister seeks investment to counter external woes

Belarus’s first deputy minister of the economy, Alexander Zaborovskiy, explains how a flexible exchange rate scheme and a more attractive investment environment can help the country survive knock-on effects of the economic difficulties facing neighbouring Russia and Ukraine.
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Q: The Belarusian economy is strongly linked to those of Russia and Ukraine. How significant is the impact of the economic downturn in the two countries on Belarus?

A: We are very strongly integrated within the region. We are linked to the Russian market, we are linked to the European market, we are very closely interacting with Asian companies, including those from China, and when we see the sharp devaluation of the Russian rouble, of the euro; when we see the depression and deep crisis in the Ukrainian economy, which is the second largest of our trading partners; [when we see] the slowdown of Chinese economy, this is not a good external environment for [Belarus'] development.

Belarus is traditionally a transit country joining different markets. The sanctions issues between Russia and the West are not good for us because we see a freeze in trade, which affects the Belarusian economy negatively. The reduction of investment demand in Russia is an additional challenge.

From a historical perspective, we have had an average growth rate of about 5% of gross domestic product [GDP] over the past 10 years and now we have a GDP growth rate of about 2%. This year, we might even see a contraction in GDP, which is very unusual for our policy-makers because it results in a complete change to the external environment.

Several years ago, nobody would have predicted this sharp decline in the oil price and the very sudden freeze in the Russian economy. We see the contraction in GDP and in investment demand in Russia, we see a very deep recession in Ukraine, and several months ago there was a very significant adjustment of the European currency. Of course that doesn’t help the competitiveness of the Belarusian economy and it requires some adjustments to our economic policy. We have made these adjustments.

We implemented a flexible exchange rate regime, which is a big institutional change in Belarus. It affected the overall situation in the banking sector. Our national bank carried it out very proficiently and we are seeing the results of having a more flexible exchange rate: a reduction in inflation, and a sharp reduction in the current account deficit. Due to big budget consolidation measures, implemented by the government, now we are seeing a surplus in our country's budget.

Q: On that basis, what is your medium- to long-term forecast for the Belarusian economy?

A: Our mid-term goal is to restore economic growth. We calculate that by implementing the government programme of structural reforms, we will be able to reach annual growth rates of about 4% of GDP by 2020. This is not just our target, but a goal we share with the World Bank, in co-operation with our International Monetary Fund partners. The roadmap is a very clear sign of where we should go, what we should do, and in what order, and we asked our World Bank colleagues to support us.

The main pillars of this near- to medium-term programme are achieving macroeconomic stability, the implementation of structural reforms, and the support of the private sector with a focus on the development of public private partnerships [PPPs].

Q: What is the strategy behind your PPP plans?

A: What we need in Belarus is a good environment for long-term investment, attractiveness, good trust between public and private partners, and PPPs are a way to addresses this challenge.

Sometimes managing political and economic risks is difficult for a private party, but in infrastructure projects the government can usually help. It is an important part of the government programme to provide opportunities for mutually beneficial co-operation between the government and the private sector and to create an environment in which the government is managing the risk, where it can best be managed, concerning macro-economic stability and regulatory risk.

In the field of PPP development, we are working closely with the European Bank for Reconstruction and Development [EBRD]. The EBRD, of course, is not a private investor but an institution that can provide support through loans, consultancy and long-term guarantees. We have some tools to work with the EBRD and help foreign investors to work in Belarus.

Traditionally, PPP is considered closely related to infrastructure, but we consider PPP in a broader context, as a policy of co-operation between the state and private sector. For Belarus, this co-operation is very important. Important drivers of our economic growth are the private sector, small and medium-sized enterprises and attracting foreign investors. We think that in the near future these factors will drive economic growth in the country. 

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Read more about:  Central & Eastern Europe , Belarus