bne IntelliNews -
Belarus has kick-started its modernisation programme and will eradicate more than $12bn in foreign debt in five years while winding down its foreign borrowing, President Alexander Lukashenko said on August 4 as finance authorities still struggle to plug large holes in the country's reserves.
Lukashenko, who is expected to win a further five-year term in elections in October, said Belarus set itself a strict deadline to clear the foreign debt burden while attending the July BRICS summit held in the Russian city of Ufa.
"In Ufa we made a pledge to resolve the problem of the debts in five years," Interfax quoted the president as saying in Minsk, while underscoring that billions previously borrowed had not been wasted. "These debts include many funds that were only used for modernisation," Lukashenko added. "This money was not frittered away, we spent it on upgrading enterprises."
Credit hunt on as debt crunch looms
This year the crisis-hit former Soviet republic has to repay and service foreign debts to the tune of $4bn, potentially ravaging its international reserves of $4.7bn unless it can secure further credits now being discussed with lenders.
However, the governor of the National Bank of Belarus (NBB) Pavel Kallaur said it will be possible to restore the current $4.7bn level of reserves by the end of the year, largely through further stop-gap borrowing. The $4.7bn available is equal to two months of import cover, while three months is usually regarded by economists as necessary to maintain stability of the domestic currency.
Kallaur appeared to respond to a forecast earlier in August by Austrian banking group Raiffeisen that the country's reserves could shrink to $2.8bn by the end of the year, equal to around one month of imports cover. However, Belarusian authorities have stepped up efforts to secure new credits from Russia, the International Monetary Fund (IMF) and other Eurasian partners, with progress on all fronts, Kallaur and other finance officials stress.
"I am talking about the Extended Fund Facility (EFF) created by the IMF to resolve long-term problems concerning the balance-of-payments," the NBB governor told journalists in Minsk on August 4.
Kallaur added that Belarus hopes to secure $2bn-3bn: "$3bn is a maximum sum. At any rate this represents some kind of extraordinary financing. I believe it is advisable to build relations with the IMF without resorting to extraordinary financing, hence we may consider borrowing less than $3bn, but more than $2bn," he said.
The IMF says it may send a mission to Belarus later this year for talks on a new aid package. The mission depended the multinational lender and Belarus achieving "sufficient progress" in "the dialogue on key essential and technical matters" needing more work to prepare a new programme, the Fund said.
Plumbing the debt pile
Belarus borrowed a total of $679.1mn in January-June, including $429.7mn from the Russian government and Russian banks; $228.8mn from Chinese banks; and $20.6mn from the International Bank for Reconstruction and Development (IBRD), part of the World Bank Group.
Since the beginning of 2015, Belarus has made $547.8mn in repayments, including $150mn to the Russian government; $75.9mn to the IMF; $176.6mn to the Russia-led Eurasian Fund for Stabilisation and Development (EFSD), $80.5mn to Chinese banks; $7.5mn to the IBRD; $0.7mn to the US; and $56.6mn to Venezuelan banks.
Mapping cautious reforms
In April, the Belarusian authorities proposed to the IMF a "road map" of structural reforms to be undertaken over the next five years, Economy Minister Vladimir Zinovsky told bne IntelliNews.
According to the document, the government intends to abandon price regulation for "socially important goods" and to introduce full liability to housing and utilities payments for the general population. However, authorities also plan "to improve the system of targeted social support for vulnerable groups and support mechanisms for unemployed people" with the aim of softening possible shocks from reforms.
Belarus has been hard hit by the effects of Western economic sanctions against its main trading partner and regional ally Russia. Calls are also growing in the US for tighter measures to prevent sanctions-breaking imports into Russia via Belarus, which has served as a "back door" for some banned goods in the past year.
Russia to the rescue?
Belarus also received crucial injections of funds from Russia this year, with the transfer of $870mn under a previously agreed loan programme. The Belarusian government is also negotiating with the Russian government on the refinancing its state debt repayments scheduled for 2015.
Belarus also said it is negotiating a new $3bn loan with the Russia-led Eurasian Fund for Stabilisation and Development (EFSD). "We originally applied for $3bn, but the final amount will depend on a number of factors, including the resources of the Fund," Kallaur said.
Meanwhile, the central bank predicts inflation in Belarus to slow to 12% next year from the 16% forecast for the end of 2015, the governor said.
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