Bel arus country economic memorandum
2005 and 2010, reaching 78 percent of GDP by the end of 2010, double its level five years previously. As a result, commercial bank loans became a major source of investment (together with budgetary capital expenditures and enterprise resources) (figure 2.13).
Figure 2.12. Domestic Credit to the Economy
Figure 2.13. Sources of Investment Financing
in percent of GDP
50 45 40 35 30 25 20 15 10 5 0
in percent of GDP
30
44.5 38 26.5
32.8
30.2
26.6
25 20 15
21.2
3
3.7
4.9
5.4
6.4
2006
2007
2008
8.4
10.5
2009
2010
10 5 2004
2005
2006
2007
2008
2009
2010
Source: World Bank calculations based on National Bank of the Republic of Belarus data.
0
2004
2005
Consolidated budget and EBFs Enterprise resources Domestic banks' loans and inter-enterprise loans Foreign banks' loans and foreign investment
Population Other sources
Source: World Bank calculations based on Belstat data.
Despite high and rising investment rates, returns on capital have reached a plateau. Gross fixed capital formation (GFCF) grew at an average rate of 18.6 percent (in real terms) annually, outpacing the already high GDP growth rates during that period (7.7 percent). In 2010, GFCF accounted for almost 40 percent of GDP, becoming the major contributor to economic growth (figures 2.14 and 1.11). While investment expanded, economy-wide returns on capital have stagnated and even declined in recent years (figure 2.15). This trend indicates that investment growth was associated with inefficiencies in the allocation of capital across the economy.
Figure 2.14. Gross Fixed Capital Formation
Figure 2.15. Gross Fixed Capital Formation and Rates of Return on Capital, 2001–10
in percent of GDP
40 35 30 25 20 15 10 5 0
22.7
22
23.7
25.3
26.5
29.7
31.4
33.3
35.9
39.3
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Sources: World Bank calculations based on Belstat data.
4.5 4 3.5 3 2.5 2 1.5 1 0.5 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Index of GFCF growth, 2000=1
Index of RORK growth, 2000=1
Source: World Bank calculations based on Belstat data. Note: Based on the producer price index as a wage deflator.
In Belarus, credit is channeled through a highly concentrated state-owned banking sector (figure 2.16). Commercial banks control 96 percent of the total assets in the financial sector and perform virtually all core financial intermediation functions, including those related to the accumulation of savings, the extension of loans, the execution of operations in domestic and foreign financial markets, and so on.
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Chapter 2. Boosting Efficiencies in Factor Markets