Belarus Public Expenditure Review : Strengthening the Equity, Efficiency and Effectiveness of Social Expenditures in Belarus
After more than a decade of strong growth, interrupted only by the 2008-2009 global financial crisis, Belarus’ economy has encountered major headwinds. Since 2012, growth has stalled, macroeconomic imbalances have intensified, and public finances h...
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| Format: | Report |
| Language: | English |
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World Bank, Washington, DC
2020
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| Online Access: | http://documents.worldbank.org/curated/en/919441606128364049/Belarus-Public-Expenditure-Review http://hdl.handle.net/10986/34830 |
| Summary: | After more than a decade of strong
growth, interrupted only by the 2008-2009 global financial
crisis, Belarus’ economy has encountered major headwinds.
Since 2012, growth has stalled, macroeconomic imbalances
have intensified, and public finances have deteriorated.
Unlike regional peers, the country was unable to take
advantage of buoyant global demand, ample liquidity and
strong risk appetite. This suggests that the causes for this
disappointing outcome are domestic and rooted in the current
economic model based on an outsized public sector and
reliance on Russia for cheap energy and as main export
market. The narrow export base has left the economy
vulnerable to economic weakness in Russia and, indirectly,
to volatility in global oil prices. These shocks have
exposed major structural weaknesses, that have dragged down
productivity and potential growth and increased Belarus’
vulnerability to major shocks such as the Coronavirus
(COVID-19) pandemic. The policy response to the external
headwinds has been pro-cyclical. It has focused on avoiding
major financial disruptions and resorting to increased
foreign borrowing to make it through the financing pressures
rather than deeper structural adjustment needed to adjust to
the new realities and anchor fiscal sustainability. It has
focused on exchange rate adjustment accompanied by ad-hoc
fiscal retrenchment. The latter, however, although
significant, has been episodic and less than optimal as it
has protected consumption at the expense of investment. The
scope for fiscal adjustment has been constrained by the
structural rigidities of Belarus’ public finances. Looking
forward, Belarus now faces a perfect storm of a global
economic shock caused by the Coronavirus (COVID-19)
pandemic, an unprecedented drop in oil prices, and the
phasing out of the energy import price discount by 2024 due
to the Russian tax maneuver. All these adverse external
developments come against the background of deeply rooted
structural rigidities, a heavy debt redemptions schedule and
a much-reduced policy space compared with previous episodes
of external pressures such as in 2009 and 2015. |
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