Only foreign loans may help Belarusian international reserves

The Belarusian banking system requires at least USD 10 billion in order to function safely. In July 2012, Belarusian international reserves reached their maximum at USD 8.3 billion. Amid problems in the foreign trade and insufficient capacity of the domestic financial market, Belarus would only be able to replenish her international reserves with new foreign loans.

According to the Belarusian National Bank head, Belarus requires at least USD 10 billion in the international reserves in order to ensure three months of imports of goods and services and to be able to service her short-term public debt. This amount will enable Belarus to reduce the cost of servicing foreign debt and will ensure timely payments on her internal and external liabilities. As of May 1st, 2016, Belarus’ international reserves totalled USD 4.2 billion and increased in April by USD 37.1 million thanks to the net supply of foreign currency on the domestic currency market. Currently, Belarus’ international reserves are only worth 1.2 months of imports of goods and services.

Over the past 10 years, Belarus has never had USD 10 billion worth of international reserves. The reserves reached their maximum volume in July 2012 with a total of USD 8.3 billion, thanks to the sale of 50% of Beltransgaz shares in November 2011 at USD 2.5 billion and a record high supply of lubricants and solvents in 2011-2012. H1 2012 was marked by the current account surplus, which enabled international reserves’ record high growth.

In Q1 2016, foreign trade deficit totalled USD 8.1 million. The state of trade would not allow for a steady increase in gold reserves. During the first 3 months of 2016, Belarus managed to raise USD 686.5 million through external treasury bonds, of which USD 226 million was allocated to repay previous loans. Belarus has met her domestic currency liabilities with a total worth of USD 566.5 million. The capacity of the domestic borrowing market is very small: of the total Finance Ministry currency bonds issued in early 2016 worth USD 300 million only a little more than half were sold three months later.

The National Bank has issued foreign currency bonds in order to refinance securities with expired circulation period. The population remained a stable currency supplier – in January-April 2016, the population sold about USD 350 million on a net basis, which, however is not enough to replenish the international reserves to USD 10 billion.

The only safe source of growth in gold reserves in the given circumstances is a large loan or a new issue of Eurobonds. The Belarusian leadership is not ready to carry out reforms proposed by the IMF, which makes a loan from this organisation unlikely. Belarus may place her Eurobonds in Russia and thanks to the anticipated surplus in foreign exchange liquidity on the Russian market and raise USD 1.5 – USD 2 billion. Banks could raise the remaining funds on foreign markets.

The current level of gold and currency reserves in Belarus is insufficient to secure the banking system operations and does not allow reducing the cost of the external debt servicing. Due to the small capacity of the domestic financial market, Belarus may only replenish her gold reserves by raising additional funding through Eurobond issues or foreign loans.