Domestic market borrowing potential is not exhausted yet
On April 25th, First Deputy Finance Minister Vladimir Amarin announced the Ministry’s plans to involve USD 300-400 million from the domestic foreign exchange market in 2013.
Belarus has successfully coped with international debt payments. The international trade situation raises concerns due to growing negative trade in goods balance, which may require additional monetary resources. Due to the instability in the international financial markets, borrowing in the domestic market remains the real source of low-cost international debt refinancing.
In Q1 2013 Belarus paid off USD 330 million of international public debt. It had no impact on the gold reserves volume because in January 2013 Belarus received USD 440 million from the EurAsEC Anti-Crisis Fund. The domestic foreign exchange market situation is characterized by net currency supply, both from legal and natural persons, enabling the National Bank to buy certain volumes of currency supply and pay off international debt without reducing the international reserves’ standard.
According to preliminary data, international trade in goods balance and international services in Q1 2013 were positive at USD 279.4 million. This amount does not include export duties on oil products – Belarus has listed more than USD 1 billion to the Russian budget. Due to further growth of Belarus’ international debt and potential deterioration in foreign trade, Belarus will need further borrowings for the timely repayment of her international liabilities. The domestic currency market situation may change soon, and the National Bank will not be able to buy foreign currency in the domestic foreign exchange market. The EurAsEC ACF fifth tranche, to be allocated by late April, will create the necessary reserve for payments in Q2 2013, but will not be sufficient to make all payments due in 2013.
Due to unfavourable international financial market situation, Belarus’ Eurobonds placement has been postponed. The Finance Ministry relies on domestic market borrowings. Two debut issues of state foreign currency bonds for individuals, worth USD 50 million were sold off, the third issue, worth USD 50 million with a two-year maturity period is nearing its completion.
On April 24th, one of the Belarusian banks bought government’s foreign currency bonds worth USD 75 million at 6.9% per annum for a 4 year-period. On April 25th, Belarus held the first auction for foreign currency bonds at pre-announced 7.25% interest rate per annum for 3 years. The demand exceeded supply by half.
In addition, two largest state-owned banks, Belarusbank and Belagroprombank, issued foreign currency bonds for individuals on similar in terms as government bonds, but with shorter maturity period - one and a half years at 7% per annum. Bonds sales are successful, which means the domestic foreign exchange market has bigger borrowing potential.
Thus, both natural and legal persons can provide the state with their own available resources at acceptable rates. There is certain potential for bigger borrowings and the state sees no difference where the money for refinancing of the public debt comes from. The next logical step would be the appearance of the secondary market for the state currency bonds for individuals.
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.