Republic of Belarus: Selected Issues

The global financial crisis that erupted in the late 2008 had a profound impact on Belarus's economy. The unprecedented external shock necessitated a strong set of corrective measures, including exchange rate adjustment. The central question is whether the measures in the exchange area are sufficient to restore current account sustainability. This paper attempts to answer this question by examining various pieces of evidence-including basic indicators of competitiveness as well as the macroeconomic balance and external sustainability approaches. The evidence points to the conclusions that (i) the substantial misalignment observed in the end of 2008 has been largely corrected and the need for further substantial exchange rate adjustment is not evident (although a small correction could be justified). Sustainability of the current rate, however, is conditional on maintaining tight domestic demand policies necessary to support the peg over the medium term.