Belarus is likely to repay her external liabilities in next 18 months
Moody's has noted low risks with servicing Belarus’ external public debt over the next 1.5 years. Taking into account the growth in public debt in recent years, public debt servicing costs have become one of the most costly items in the state budget. Successful Eurobond sales on foreign markets and an agreement with Russia would help to close issues with repaying public debt in 2018 and would reduce the urgency of the IMF loan.
According to Moody’s statement of July 11th, 2017, Belarus was close to ensuring full funding for her external debt over the next 18 months, including repayment of Eurobonds worth USD 800 million in January 2018. At the same time, external vulnerability due to low level of currency assets and dependence on external financial support has retained. In 2016, Belarus’ Caa1 rating was confirmed and the forecast was changed from negative to stable.
Servicing and repaying public debt is the key challenge for the Belarusian economy. In 2016, Belarus spent BYN 1.9 billion to service public debt (USD 950 million or 6.8% of the state budget), which exceeded allocations for housing and communal services and housing construction. In 2016, Belarus repaid USD 900 million of public debt and USD 1.5 billion for government bonds in Belarusian roubles and foreign currency inside the country. In 2017, public debt payments would be circa USD 1.1 billion.
The issue with funding of public debt was closed due to the receipt of USD 1.4 billion from the sale of Eurobonds with five and ten year maturity period (completed on June 29th, 2017). In addition, on June 29th, the Belarusian Finance Ministry received the USD 300 million credit tranche from the EDB, despite the failure to meet one indicator. Agreements with Russia on oil have closed the issue of servicing the national debt, since 18 million tons of oil will be processed at the Belarusian refineries, ensuring their optimal load and maximizing the yield of light oil products, export duties from which would be listed in Belarus’ budget. Additional 6 million tons of oil will be re-registered on Belarus, with the subsequent receipt of the export duty from re-exports. In addition, Russia is expected to allocate a USD 700 million state loan to Belarus.
Provided the lack of disputes between Russia and Belarus, the latter would receive the remaining tranches from the EDB, scheduled for 2017-2018, even if she fails to meet some commitments. The book of applications for Belarus’ Eurobonds exceeded USD 2.5 billion, which leaves an additional reserve for attracting investors' funds when needed. That said, Belarus would meet all her public debt obligations, the majority of domestic liabilities will be refinanced at lower interest rates. The IMF loan could help to reduce the cost of external loans, however it is no longer a critical need for the Belarusian authorities, so she is unlikely to rush implementing all the IMF requirements.
Moody's has noted a high probability of full repayment of all state obligations in the next 18 months. Belarus is likely to slow down the negotiations with the IMF, so as Russia has continued to provide financial support to Belarus, and the placement of Eurobonds has demonstrated the potential for additional external borrowing if necessary.
Amid budgetary cuts on social protection, the Belarusian public sector is experiencing a management crisis and a balance shift in the state resource redistribution system. The authorities are forced to revise their most unpopular decisions during the implementation due to the pressure from affected social groups. The state is unlikely to oppose to some civil society and opposition organisations in strengthening their role in society in order to retain touch with the population and to be able to respond to the most harsh criticism of state initiatives.
The Architecture and Construction Ministry has acknowledged that the decree No 585 on assistance to large and young families in building and buying housing was prematurely rescinded.
The authorities are often forced to revise their decisions on curtailing social assistance to different social groups during their implementation, without preliminary impact assessment and feedback from the population, so as they lead to the growth in social tension. Due to the centralised decision making, languishing state resources and the lack of public debate as a balancing instrument in issues related to social protection, the state administration is losing control of the population.
Perhaps, the compensatory mechanisms of the state apparatus lack the time to adjust to dwindling state resources for supporting the existing social model, even in a reduced form. The authorities have completely or partially paralysed operations of independent public institutions and representative bodies, through which they could monitor public moods and receive feedback from the population, such as local councils, the parliament, political parties and NGOs. Last year, under the pressure of the authorities, the last independent institute for measuring public sentiment, IISEPS, suspended operations.
President Lukashenka’s self-removal from the decision-making on current socio-economic issues, also could have affected the state apparatus’ operations. The president has always been very sensitive about adopting unpopular decisions which could lower his popular support, hence demanded a careful preliminary assessment of such decisions. However, recently, especially after the introduction of the tax on social dependants, the president has mainly focused on the foreign policy agenda.
Hence, a lacuna has formed in the state decision-making after the president reduced participation in the current socio-economic policy formation, which leads to an increase in manifestations of dysfunction in the public administration.