EFSD loan as a step towards new IMF loan for Belarus
The Eurasian Fund for Stabilisation and Development (EFSD) has approved a USD 2 billion stabilisation loan for Belarus, which will be allocated in tranches as key conditions are met by Belarus. This approach has been introduced due to Belarus’ failure to meet all the requirements of the previous loan. Most EFSD requirements repeat those by the IMF, which means that if the Belarusian government fulfils all the EFSD requirements, it may increase its chances for the IMF loan.
The loan will be provided in seven tranches over the period of 2016-2018, each tranche will be supported by a performance report on key parameters, as outlined in the agreement. The loan’s interest rate is 4.06% per annum for 10 years, five of which are a grace period. If Belarus implements the key parameters, by 2018 the inflation rate should reduce to single digits, the gold reserves should reach the two-month volume of imports, the population should pay not less than 70% of the housing and communal and transport services cost, and the practice of setting performance indicators for enterprises should be abolished.
The loan has been broken in seven tranches due to Belarus’ failure to fulfil the requirements of the previous loan from the EFSD. In 2011, Belarus signed an agreement with the EFSD for a USD 3 billion loan in six tranches. The sixth tranche has never been disbursed due to Belarus’ failure to meet ten of 14 indicators, five of which were benchmarks. Belarus has not fulfilled the requirements as it has come around to stimulating domestic demand, which in an unfavourable external environment, has led to a deterioration with the balance of payments. In order to enhance the responsibility of the Belarusian authorities, most of the requirements have been included in the Government and National Bank policy documents.
The Government programme, coordinated with the EFSD contains requirements similar to those put forward by the IMF. That said, Belarus-IMF talks have stumbled upon terms of reforms in transport tariffs and housing and communal services costs.
Provided that Belarus does not have many willing creditors and has to repay previous loans, which soon may add up to USD 3 billion a year, the Belarusian government is likely to be keen on meeting the requirements of the EFSD loan, also, as it may help to obtain new loans from the IMF. If Belarus signs a loan agreement with the IMF, foreign investors may step-up their interest in Belarusian securities, which, in turn may reduce the debt servicing cost.
Overall, the EFSD has learned from its past mistakes and tightened the conditions for obtaining new credit tranches. The Belarusian government is likely to fulfil the EFSD requirements to the maximum, as it may bring the agreement with the IMF over a new loan, closer.