Belarus is a lower middle income country with a Gross National Income (GNI) per capita of US$ 1,360. The economy is highly industrialized and largely dependent on the import of energy and raw materials. The country retains many features of a planned economy, with the Government wielding significant control over the factors of production and the decisions of economic agents. The agricultural sector remains unreformed, small and medium enterprises have undergone a minimal level of development, and a considerable share of GDP is allocated to social expenditures.

Trade, services, and the industrial sector are the main sources of economic development. In 2002, agriculture amounted to 9.5 percent of GDP, industrial production to 26.5 percent, and services, including construction, to 51.8 percent. Belarus exports large quantities of machinery, transport vehicles, chemical and petrochemical products, fibers, fertilizers and transport services. Raw materials remain the main import, coming mostly from the Russian Federation, the country's main trading partner with whom the bulk of foreign trade (around 60 percent) is conducted.

The country continues to be affected by the explosion at the Chernobyl nuclear power plant in 1986, when almost 23 percent of its territory was contaminated by the radioactive fall-out. The necessity of allocating resources to deal with the enormous environmental, economic, fiscal and social consequences of the catastrophe, which amounted to 1.6 percent of GDP in 2000, has put considerable pressure on the budget for a number of years.

Events since independence

At independence in 1991, Belarus inherited one of the highest standards of living in the former Soviet Union (FSU). Since then, the country has passed through several phases in its political and economic development. During 1991-1995, with the support of international organizations, Belarus initiated preliminary reforms towards a market economy.

However, from the end of 1995 onwards, the Government sought to insulate its population from the pain of reform by protecting jobs and wages. This was accompanied by extensive administrative controls over prices, margins and the exchange rate. The state retained control of most productive resources, and a significant share of GDP was allocated to social expenditures and subsidies. Market-oriented reforms were very limited.

Economic growth resumed in 1996 led by the State Owned Enterprises (SOEs). However the lack of investment, the ineffective use of resources and, recently, the decline in the competitiveness of Belarusian products in Russia, the country's main trading partner, has slowed GDP growth in Belarus from 8.4 percent in 1998 to 4.7 percent in 2001 and 2002.

Recent economic performance

In recent years, macroeconomic stability has been threatened, with inflation reaching over 100 percent in 2000, and 50 percent in 2001 . The stricter stance of monetary policy adopted in 2000 helped to reduce inflation to 43 percent in 2002, although this was still the highest among the CIS countries.

Foreign exchange policy substantially improved in the fall of 2000 when the Government announced the unification of the exchange rate and the adoption of market-based monetary policy guidelines. The Belarusian ruble was pegged to the Russian currency, with allowance for gradual real devaluation. This helped to improve confidence in the economy and gave an impetus to dialogue with the International Financial Institutions.

In education, social services and health, the Government maintains an expensive input-based approach. However, new designs of social assistance and health services are currently under pilot testing with World Bank assistance. According to recent findings, the incidence of poverty in Belarus has declined substantially over the course of past eight years. The generous social protection system, price controls and a policy of administrative targeting of real wages in 2001-2003 have contributed to the decline in poverty. However, this approach is not sustainable in the long term.

Focus of World Bank Assistance

Belarus joined the World Bank in 1992. The Bank’s objective is to assist the country to implement policies that foster economic growth and improve the lives of its people. In doing so, the Bank’s program concentrates on helping create the foundations for long-term economic well-being, and is focused on productive cooperation with Belarus in the following areas:

Improving social policies by assisting the Government to define and implement a social assistance system that will effectively reach those who need it most.

Dealing with the important environmental agenda, especially with the continuing legacy of the Chernobyl catastrophe by suggesting a new approach that enables rural people living in the most affected districts to develop better living conditions, including safer and more sustainable livelihoods.

Addressing the spread of HIV / AIDS and tuberculosis. The incidence of infectious diseases has increased over the past years. Today, some six percent of the population has tuberculosis, and the country has the region's second highest incidence of HIV / AIDS.

Helping the country open up its economy and society by promoting public-sector transparency and accountability, creating a favorable environment for business development, and facilitating the emergence of civil society voices and organizations.

Impact on the Ground

Unique ecosystems preserved and forest management improved. Forest air pollution is now better monitored and the use of fuel-wood has improved, through a US$42 million Forestry Development Loan. In addition, the risk of forest fires has been reduced, and forest resource planning has been upgraded.

Heating systems rehabilitated. Over 450 schools, hospitals, and community homes across the country have benefited from rehabilitated heating, lighting, and insulation systems, under a US$22.6 million Social Infrastructure Retrofitting Loan. As a result of the rehabilitation, these buildings have reduced energy consumption by 18 percent during the pilot phase of the project.

Production of ozone-depleting substances eliminated. The production of ozone-depleting substances has been reduced to 274 tons in 2000, from 1,996 tons in 1989, with assistance from a Global Environment Facility (GEF) grant of US$6.9 million. The grant has also enabled the machinery-building and radio electronic enterprises to retain a highly skilled labor force. In addition, it has increased the competitiveness of Belarusian products, such as electrical appliances and refrigerators, in external markets.

Government’s economic reform program supported. This is being done through a US$8 million Institution Building Project and a US$120 million Rehabilitation Loan.

Targeted social assistance program designed and piloted. A new social assistance program that consolidates a number of small programs has been designed and piloted under an IDF grant. The new program is the first step in the overall re-design of such programs.

Attention drawn to critical issues. Research reports have been prepared on issues that affect the country’s development, such as poverty reduction, agriculture, the business environment, social services, energy, e-readiness, transportation, public expenditures, and the long-term consequences of the Chernobyl disaster.

A forum for continued dialogue between civil society and policy-makers provided. A series of outreach programs have been undertaken to promote discussions within the country and to build a constituency for reforms.

Challenges Ahead

The Government’s economic program sets a number of ambitious targets on the macroeconomic front while reiterating a cautious approach to reforms in pricing and property rights. It is important that responsible economic management take a front seat. Belarus needs to embrace a program predicated on:

· Continuing to improve the country's macroeconomic position and introducing hard budget constraints, while granting more operating flexibility to SOEs.

· Substantially improving the business environment to allow the creation of economic opportunities by reducing price controls, and other complementary measures.

· Increasing transparency and efficiency in the management of the budget, particularly with regard to the social protection system, which is oversized and inefficient, and performs poorly in many areas.

· Dealing with the important environmental agenda, in particular with the continuing legacy of the Chernobyl catastrophe which has had important economic, fiscal and social consequences.

· Facilitating the emergence of civil society that will enrich the social fabric, focus attention on social problems, and assist with the emergence of a strong SME sector.


World Bank Partners in Belarus

Ministry of the Economy
Cabinet of Ministers

By Sector:

	up to 1996	1997	1998	1999	2000	2001	2002	2003	Total
Commitments	170	-	-	-	-	23	-	-	193
Disbursements	122	8	9	3	2	6	7	1	158