The Russia-led Eurasian Fund for Stabilization and Development (EFSD) is in talks with Belarus about financial assistance, but the fund’s managing director, Andrey Shirokov, says the cash-strapped country must first implement reforms before receiving funds.
Western sanctions imposed last year in response to a sweeping crackdown on street protests have made borrowing on international markets expensive for Minsk, which had $8.55 billion in international reserves as of Nov. 1.
“We are in discussions with Belarus about a potential government and central bank program to support its budget and balance of payments,” Shirokov said in an interview with Reuters.
The European Union, the United States, Britain and Canada imposed sanctions on Belarus last year over a crackdown on street protests against what the opposition said was a rigged presidential election – a claim Belarus authorities deny.
Ties with the West further soured this year after a passenger plane overflying the country was forced to land and a dissident on board arrested. Minsk is also currently locked in a standoff with the EU over migrants.
The EFSD, a regional institution designed to provide financial support to its member states which include Belarus, can provide funds to the country at favorable terms and has no deadline for approving a financial aid package, Shirokov said.
The fund’s loan limit for Belarus is $1.79 billion but it could be changed by reallocating other member-states’ funds, Shirokov said.
The EFSD said it requires that Belarus implement reforms to boost economic growth in order to release the funds.
To that end, it recommends that Belarus adopts a monetary policy that targets inflation, balances its budget policy and sets limits on debt levels. It also wants state-run enterprises to be reformed, Shirokov said.
Belarus President Alexander Lukashenko in August asked his Russian counterpart Vladimir Putin to provide him with $1 billion via the Eurasian Development Bank (EDB), which manages the EFSD’s funds, after the Belarusian economy took a hit from the COVID-19 pandemic, the domestic political crisis and Western sanctions.
Belarus received a pre-approved $930 million from the International Monetary Fund shortly after Lukashenko’s request to Moscow. That made the Belarus borrowing issue “less acute”, but did not resolve it, Shirokov said.
“This amount is not enough, the need is higher,” he said.
Belarus runs the risk of financial shortfalls in the next three years, the size of which the EFSD is currently assessing, while its economy has the potential to grow by just 1% a year in the medium term after shrinking 0.9% in 2020, Shirokov said.
“The country can’t afford to sustain high social spending. There are two options here — either to carry out reforms to increase potential and actual economic growth, or to cut spending,” Shirokov said.
Russia is EFSD’s largest donor but Shirokov said Moscow cannot make decisions on its behalf on its own. The fund was set at $8.5 billion in 2009 and has been increased by around $1 billion since then.