MINSK - Russia’s ratings agency Expert RA Europe has affirmed Belarus’ home-currency sovereign rating at ‘B’ and the foreign-currency sovereign rating at ‘B-’.
The positive outlook signifies that Belarus’ sovereign ratings are likely to be upgraded in the medium terms.
“Our confirmation of sovereign government credit ratings of Belarus at ‘B’ in national currency and at ‘B-’ in foreign currency reflects the ongoing economic recovery, improvement of the banking system metrics, acceptable fiscal deficit as well as positive structure of the government debt in terms of creditors and maturity. We kept the positive outlook on both ratings due to our expectations for economic growth and gradual resolution of the “bad loans” issue in the banking system. The ratings remained restrained by moderately high overall debt levels and its currency structure, volatile inflation, persistent contingent liabilities of the government as well as underdeveloped financial markets. We kept the currency risks due to meager level of FX reserves and a still risky status of the local currency.”
Belarus’ economic growth likely to slow down
Experts at Expert RA Europe reckon that Belarus’ economic growth will slow down in the medium term.
“The reduction of investments and internal consumption in Q3 2018 indicated that the economy reached a flexing point in the economic cycle. We still consider long-term growth to remain in the range between 2% and 2.5% in the following years due to structural misbalances of the Belarusian economy related to the sluggish performance of inefficient state owned enterprises (SOEs), moderately weak institutional environment and lack of competition. The government’s plans to promote economic growth through the support of the so-called “new economy” (mostly represented by IT companies) can have a limited mid-term effect due to the low share of such industries in total output. In addition, the midterm economic growth remains dependent on the performance of the Russian economy, the main trade partner of Belarus and key source of FDI.”
Russia to sustain financial support
Experts at Expert RA Europe reckon that the overall debt load risks are mitigated by the favourable maturity and debt holders’ structure. While the short-term external debt is estimated at 6% of GDP and 15% of budget revenues by end-2018, the prolongation or restructuring of large part of the state debt can be done with a high probability. Despite the recent turmoil in political relationships between the Belarusian and Russian governments, we still believe that potential financial support from Russia is not at risk. This opinion is based on the track record of credit support from the Russian fiscal authorities, state-owned banks and the Eurasian Fund for Stabilization and Development, which provided Belarus with financial assistance even in periods of political discrepancies.
This partly mitigates risky currency structure of the government debt, which is 90% FX-denominated, while international reserves represent only 29% of this value.
Russia to provide no direct compensation for losses from tax manoeuvre
The tax manoeuvre in the Russian oil industry will have a negative effect on Belarus’ external and fiscal position. Currently, the Belarusian state-owned oil refineries buy Russian oil at a preferential price, which excludes duties. Also, the government of Belarus transfers all duties on exported refined oil products to the country’s budget. As a result, the authorities expect losses from this tax manoeuvre to be around $300m in 2019 (around 2% of budget revenues) with a gradual annual increase that could reach up to $2bn in 2024.
“In our view, Russian authorities are not going to provide direct compensation for the country’s fiscal budget. Instead, they will continue to provide new credit resources as well as restructure and prolong the current debt.”