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.
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.