Finance Ministry proposed new investment tool to population
In 2013, Belarus will have pay off over USD 3 billion foreign debt. Raising foreign currency from the population is the alternative to foreign loans. Well-thought through issue terms of the government bonds for individuals suggest that this new investment tool aiming at the people’s savings will be successful.
On December 13th, 2012 Finance Ministry announced the issue of government bonds for individuals denominated in foreign currency.
In 2013 Belarus will have to pay off USD 3 billion foreign debt. Its significant portion is attributable to the IMF Stand-by loan, which is not currently envisaging refinancing. Requirement of SOEs’ privatization worth USD 2.5 billion in 2012 has not been fulfilled because the country’s leadership lacks understanding why privatization is necessity. International and domestic loans are regarded as alternative sources to repay external liabilities.
Belarus has experience in attracting foreign borrowing via government debt securities in foreign currency. Bonds, worth USD 800 million, were placed on international markets at 8.95% until 2018 and bonds worth USD 1 billion at 8.75% until 2015. In 2012, the government issued debut bonds for businesses and placed them on the domestic market at 7.5% per annum for 3.5 year-term. On the domestic market, the bonds’ prevailing interest rate is lower than the foreign currency bonds’ rates potentially placed on the international markets.
Finance Ministry offered the population two bond issues: USD 200 and USD 1000 for one-year period. According to the National Bank, one-third of the new foreign currency deposits in Belarusian banks are for one year and longer. Government bonds’ yield on maturity is 7%, which is significantly higher than the interest rates on most currency deposits in Belarusian banks (5.5-6% per annum). No ID is need to acquire such bonds and their redemption is “to the bearer”, except cases of a major one-time purchase.
Belarusian population has limited investment instruments: real estate, deposits and precious metals. This new investment tool offers comfortable purchase terms, opens opportunities for potential development of a secondary market for the government foreign currency bonds and is a good solution to engaging people’s savings in the economy.
Thus, the placement of government foreign-currency bonds for individuals should be a successful undertaking. People have a new opportunity for long-term investment, which, if necessary, they can pass their bonds to third parties; and the state has a relatively cheap source of funding to repay the external debt.