Belarus may be unable to refinance her public debt timely in 2017

In 2017, Belarus is due to reimburse USD 3.5 billion for public debt, of which only USD 1.3 billion was projected in the state budget. In 2016, Belarus fulfilled her obligations vis-a-vis creditors by reducing social transfers to the population. In the view of a possible shortage of funds in 2017, the best option for Belarus would be to sign a loan agreement with the IMF, which, however, would prompt the authorities to economic reforms.

According to the Finance Ministry, in 2017 in order to service and reimburse her public debt, Belarus would require USD 3.5 billion, of which USD 3.4 billion in foreign currency. The authorities have allocated USD 1.3 billion in the state budget to cover due public debt. These funds will be raised from export duties on oil and petrochemicals, potash fertilizers, as well as due to the surplus of funds from the agreement on the redistribution of import duty within the EEU. In addition, the authorities aim to raise USD 360 million on the domestic market. The remaining funds, required to service the public debt, would be raised from international creditors.

In 2016, Belarus fulfilled all her internal and external commitments, totalling circa USD 3.3 billion. The Finance Ministry raised USD 1.9 billion from external government loans, including USD 800 million from the EEU Anti-Crisis Fund. When housing and utility rates went up in Belarus, the population was forced to become a net currency seller. In addition, the authorities raised USD 1.6 billion on the domestic market through placing government bonds with different maturities. Thanks to substantial currency inflow, the government managed to increase Belarus’ gold reserves by USD 750 million in 2016.

In 2017, the situation with funding sources to refinance public debt is not in Belarus’ favour. Credit tranches from the EEU have been suspended and there are no guarantees they will be resumed. The population has switched on saving behaviour, which implies reduced net currency sales on the domestic market. Revenues from export duties on oil and petrochemicals could reduce regardless of potentially higher oil price as compared with that projected in the state budget for 2017. In addition, the authorities have already revised the Eurobond issue plan upwards from USD 800 to USD 1 billion. In the given circumstances, the government is likely to increase foreign currency loans on the domestic market and to try to speed up the settlement of the oil and gas dispute with Russia. The best option for Belarus would be to sign a new loan programme with the IMF, which would boost sales of Belarusian bonds on foreign markets and reduce their costs. However, it remains to be seen whether the Belarusian authorities would be ready for economic reforms proposed by the IMF.

Overall, in 2016, Belarus managed to reimburse her public debt thanks to reductions in social transfers to the population and international loans. In 2017, amid a potential shortage of available sources to refinance public debt, Belarus will need to find additional funds. Should the Belarusian authorities be willing to carry out economic reforms, the best solution would be to sign a new loan programme with the IMF.