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.
Over the past year, military-political relations between Minsk and Kyiv have become complicated. Due to their high inertia and peculiarities, this downward trend would be extremely difficult to overcome.
The root cause of the crisis is the absence of a common political agenda in the Belarusian-Ukrainian relations. Minsk is looking for a market for Belarusian exports in Ukraine and offers its services as a negotiation platform for the settlement of the Russo-Ukrainian war, thereby hoping to avoid political issues in the dialogue with Kiev. Meanwhile, Ukraine is hoping for political support from Minsk in the confrontation with Moscow. In addition, Ukraine’s integration with NATO presupposes her common position with the Alliance in relation to Belarus. The NATO leadership regards the Belarusian Armed Forces as an integral part of the Russian military machine in the western strategic front (the Baltic states and Poland). In addition, the ongoing military reform in Ukraine envisages a reduction in the number of generals and the domestic political struggle makes some Ukrainian top military leaders targets in politically motivated attacks.
Hence, the criticism of Belarus coming from Ukrainian military leadership is dictated primarily by internal and external political considerations, as well as by the need to protect the interests of generals, and only then by facts.
For instance, initially, the Ukrainian military leadership made statements about 100,000 Russian servicemen allegedly taking part in the Russo-Belarusian military drill West-2017. Then the exercises were labelled quazi-open and military observers from Ukraine refused to provide their assessment, which caused a negative reaction in Minsk. Further, without citing specific facts, it was stated that Russia was building up its military presence in Belarus.
Apparently, the Belarusian and Ukrainian Defence Ministries have entangled in a confrontational spiral (on the level of rhetoric). Moreover, only a small part of the overly hidden process has been disclosed. That said, third states are very likely to take advantage of the situation (or have already done so). This is not only about Russia.
The Belarusian Defence Ministry officials are restrained in assessing their Ukrainian counterparts. However, such a restraint is not enough. Current military-political relations between Belarus and Ukraine are unlikely to stabilise without the intervention of both presidents.