The International Monetary Fund (IMF) has warned the government of cash-strapped Belarus to be prepared "contingency plans" if energy negotiations with Russia fail.

"Although the government sees a low probability of less than full compensation for the tax manoeuvre losses, contingency plans would be helpful if such an event were to materialise," the IMF said in a statement e-mailed to bne IntelliNews on November 28.

According to the multinational lender, in such an event, oil refining activity would be reduced, dampening export revenue and growth. Tax revenues would also be hit due to lower economic activity, lower transfers from Russia, and lower customs duties.

The policy response should aim to mitigate the impact on the balance of payments and facilitate the reallocation of resources in the economy, including structural reforms. "The loss of energy discounts would underscore the need for faster and deeper reform to boost productivity in SOEs, not least in the refineries," the statement reads.

Meanwhile, the IMF believes that exchange rate flexibility to allow the needed adjustment in the balance of payments, supported by fiscal discipline to refrain from untargeted and costly subsidies to the refineries, and with additional measures as needed to maintain debt in a downward trajectory.

At the top of that, tighter monetary policy to maintain inflation within target and limit undue volatility in the foreign exchange market, the multinational lender added.

The statement followed little progress in Belarus-Russia oil and gas negotiations. Minsk and Moscow seek to secure energy deal by December 15. Russia's expected tax manoeuvre envisages a gradual reduction in the rate of export duty on oil and petroleum products from 30 % to zero in the period from 2019 to 2024 and a proportionate increase in mineral extraction tax on oil production.

According to the Belarusian finance ministry, the country’s budget revenue losses from the tax manoeuvre in 2019 alone were estimated at BYN600mn ($300mn), and that the losses might total $2bn by the end of 2024.

Belarus’ foreign exchange reserves increased by $181.3mn, or 2.6% month-on-month, to $7.108bn in October. However, significant part of the reserves were created by bonds issued by the National Bank of Belarus (NBB), which the regulator should repay within the next 12 months. The bondholders of these notes are local commercial banks.