Finance Ministry relies on domestic foreign exchange reserves only

April 22, 2016 18:36

On August 28th, public sales of government bonds for businesses worth USD 100 million will take place.

De facto, Belarus has no access to the international bond markets. Before the year-end, the Finance Ministry anticipates to pay off public debt due using the last tranche from the EurAsEC ACF and domestic bonds worth USD 500 million. There are no plans to sell state property before the year-end and if public sales of domestic bonds fail, the Finance Ministry will have to dip into the international reserves to meet Belarus’ international and domestic obligations.

Belarus has no good opportunities to place its Eurobonds at the international markets. An additional negative factor was the Uralkali’s decision to terminate cooperation within the BPC. Current quotes for five-year bonds at 8.75% per annum are at par, and seven-year bonds at 8.95% are traded at 96.3% face value, which does not allow attracting financial resources from foreign markets at a low rate. The Finance Ministry wanted to attract international funds at 6.85% per annum, which is well below foreign investors’ current expectations on Belarusian securities.

Before the year-end the Finance Ministry plans to receive USD 500 million through placing government bonds on the domestic foreign exchange market: USD 400 million from bonds for businesses and USD 100 million from the population. If Belarus receives the final EurAsEC ACF USD 440 million tranche, it may have enough funds to pay off the remaining external public debt. Belarus needs these funds by late October 2013, when it has the largest monthly payment in 2013. According to the draft socio-economic development plan for 2014, the sale of state property is not envisaged in 2013.

For the Finance Ministry, the current situation is quite ambiguous. Even at the second attempt the Ministry failed to sell government bonds worth USD 50 million at 7.25% per annum. International trade is not anticipated to boost before the year-end to provide with additional currency inflow. Moreover, the population is also nervous and starts buying foreign currency at a slightest ‘threat’ to BYR depreciation. If public sales are unsuccessful, the Ministry has no other options but to dip into the gold reserves.

Thus, the Finance Ministry hopes that when the vacation season is over, interest to government currency bonds will increase. It is highly undesirable to reduce the gold reserves, since it may trigger a wave of insecurity among the population and businesses with unpredictable consequences for the national currency.