Sanctions against Russia may mean Belarus struggles to refinance public debt
Belarus’ international trade policy does not enable her to pay her own debts. In 2014 Belarus was able to repay her public debt manly thanks to the loans from Russia. Sanctions imposed on Russia and her private and state banks may complicate the refinancing process of Belarus’ old debts and receiving new loans from Russia.
On July 1st, 2014 Belarus’ public debt totalled USD 13.4 billion.
The level of economic cooperation between Belarus and the rest of the world does not enable her to repay previous loans. In January-June 2014, the deficit in foreign trade balance persisted. Belarus paid over USD 1.7 billion to Russia in export duties on Russian oil, and net investment proceeds were consistently negative. As a result, her corporate and public debts rose steadily. Belarus’ international public debt alone increased by USD 921.5 million.
In January-June 2014, Belarus repaid USD 1.507 billion without significantly depleting her international reserves. This was only possible due to a USD 2 billion bridge loan from Russia’s VTB Bank – to be followed by an interstate loan from the Russian government later this year.
Meanwhile, sanctions imposed by the U.S. and the E.U. on Russian banks directly affect Belarus’ ability to refinance outstanding international public debt payments.
Russia’s VTB Bank is included on the list of sectoral sanctions, which means that the bank will have difficulties in drawing on European markets and might be unable to provide new loans to Belarus. Russian banks on the sectoral sanctions’ list will require substantial support from the Russia’s Central Bank.
In addition, banks with Russian capital will be less active in buying bonds from the Belarusian Finance Ministry. The sectoral sanctions may lead to a reduction in lending in the Russian economy and reduce GDP growth, which may require additional budgetary support and make loans to Belarus infeasible.
To date, Belarus has only been able to meet her public debt obligations without dipping into international reserves only thanks to financial aid from Russia. Sanctions imposed on some Russian banks may have a direct impact on Belarus’ ability to refinance her public debt. She will also be prompted to diversify her sources of borrowing.
President Lukashenka has met with the head of Chechnya Ramzan Kadyrov, who visited Minsk and the Minsk Automobile Plant. Minsk has always sought to have independent links with Russian regional elites, partially, to compensate for the Kremlin's diminishing interest in Belarus. In recent years, Belarus’ contacts with the Russian regions have been extremely intense. However, with some leaders of Russian regions, primarily heads of large republics, communication was more difficult to build. As many analysts in Minsk suggested, Minsk could regard contacts between President Lukashenka and the head of Chechnya as an additional communication channel for relieving tension in relations with the Kremlin. However, most likely, a trusting relationship with Kadyrov is a value for Minsk as such, provided Kadyrov’s broad business and political interests, and a high degree of autonomy for the Chechen leader from the Kremlin.