Summary: KEY ISSUES Context: Belarus’ economic model continues to make it highly vulnerable to economic shocks. This was illustrated once more by the turbulence in foreign exchange and debt markets late last year, to which the authorities initially responded with administrative measures before allowing partial exchange rate adjustment. With Russia in recession, a large projected current account deficit, sizable debt repayments, limited market access, and presidential elections in November, risks remain high. Challenges: Further facilitating external adjustment through the implementation of strong and consistent macroeconomic policies. Also, enhancing the market orientation of the economy through bold, frontloaded structural reforms, to bring it on a more sustainable path. Policy recommendations: • Reduce subsidized lending and resist further wage increases this year to contain domestic demand; • Make the exchange rate fully flexible and tighten monetary policy to facilitate orderly external adjustment; • Assess the health of banks and decisively address any uncovered problems including by recapitalizing or resolving undercapitalized banks where necessary; • Remove price controls and mandatory targets for enterprises and devise credible privatization plans to improve resource allocation and raise sustainable growth.

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