Belarus is a lower middle income country with a Gross National Income (GNI) per capita of US$ 1,590. 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 2003, agriculture and forestry amounted to 8.3 percent of GDP, industry and construction -  to 31.5 percent, and services to 46.1 percent. In 2003, the value of exports of goods and services was equivalent to 66% of GDP, while imports amounted to 70%. 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 1.1 percent of GDP in 2003, 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.

Following an estimated decline of  about 40 percent during the period of 1992-1995, GDP growth resumed in 1996. Since than official statistics show a continuous and substantial growth in GDP and industrial production. The growth began at a time when almost all other FSU countries continued to experience decline, and even continued through the regional economic crisis of 1998-1999.

Recent economic performance.   After a decline in growth rates of GDP and industrial output as compared to their picks in 1997-1998, both accelerated in 2003 to the reported rate of 6.8 percent. In recent years Belarus has struggled with maintaining macroeconomic stability, and remains in a rather  precarious overall position, with twin deficits in the state budget and current accounts, low reserves, limited access to international financial markets, and inflation rates considerably higher than in surrounding countries of the region. 

Nevertheless, Belarus has managed to maintain general government cash deficits at less than 2% of GDP, and has had some success in reducing inflation from 108 percent in 2000 to 28 percent in 2003.   Inflation also declined due to the policy of positive real interest rates, pushed by the NBB, and unification of exchange rate and related stabilization of the market for exchange rate.

In education, social services and health, the Government maintains an expensive input-based approach. According to recent findings, the incidence of poverty in Belarus has declined substantially over the course of past eight years, while inequality has increased only marginally. This has been achieved by maintaining an extensive system of social protection, services, and administrative increases in wages. The recently prepared Poverty Assessment for Belarus gives rise to concerns about the sustainability of such policies, and highlights the importance of tracking the emerging regional and distributional differences in access and utilization of services.

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.
  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 loan for the Forestry Development Project which was completed in 2002. In addition, the risk of forest fires has been reduced, and forest resource planning has been upgraded.
  Heating systems rehabilitated. Over 350 schools, hospitals, and community homes across the country will benefit from rehabilitated heating, lighting, and insulation systems, under  the ongoing Social Infrastructure Retrofitting Project financed by a US$22.6 million loan from the Bank.. Early results show that the upgraded electricity and heating systems have resulted in up to a 30 percent drop in energy consumption. At the same time the reduced load on power stations and boiler-houses has eased the pressure on the environment, which is crucial for this country hit by the Chernobyl catastrophe.
  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.
  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:

World Bank Lending
Total IBRD / IDA Commitments from FY94 to FY03: US$193 million
(by fiscal year* ,in nearest US$ millions)

	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

Total Commitments by Sector since 1994
(in nearest US$ millions)



* Fiscal year from July 1-June 30
For more information please contact:
In Minsk : Irina Oleinick