“We have entered a pause in the negotiations over a new programme with the International Monetary Fund,” First Deputy Finance Minister of Belarus Maksim Yermolovich said in late June, commenting on the government’s protracted attempts to secure a $3bn loan package from the multinational lender.

The statement came after Minsk, which has sovereign ratings well below investment grade, had issued $1.4bn worth of dual-tranche US-dollar-denominated Eurobonds with five-year and ten-year maturities. The yield of the five-year tranche raising $800mn was 7.125%, with the ten-year tranche raising $600mn at 7.625%.

Belarus tapped the international debt market at the same time that Russia has decided to unfreeze a $2bn support package for its western neighbour. Minsk agreed the deal with the Moscow-led Eurasian Fund for Stabilisation and Development (EFSD) in 2016. Of the total credit amount, the financial institution has so far disbursed $1.4bn to the country.

Moreover, Moscow promised to its only geopolitical ally on its western border to allocate an extra $700mn as an intergovernmental loan. Belarus expects to receive the funding within the next two months and will use the funds to refinance its debts.

On June 29, Pavel Kallaur, the governor of the Belarusian National Bank (NBB), used the same definition – a “pause” – to describe the status of talks with the IMF. He was speaking at a meeting with a group of local financial experts and former officials of the regulator, where journalists were not allowed.

“Kallaur said that the sides had been unable to overcome disagreements on two fundamental issues: the level of tariffs for Belarusian households, and improvement in the management of state-owned enterprises,” one participant of the meeting told bne IntelliNews.

Indeed, Belarusian President Alexander Lukashenko has publicly opposed liberal economic transformation over the past months, despite the fact that the IMF repeatedly called on Minsk to start market-oriented reforms of the troubled economy.

In April, Lukashenko said the IMF was demanding that the government raise the cost recovery rate for utilities tariffs provided to households to 100% within 12-18 months. However, such a sharp hike in utility rates would “destabilise” Belarusian society, the president said.

“We will achieve full cost recovery, not in one or two years but in four or five years,” Lukashenko added, pointing out that he voiced this position during his March meeting with the IMF’s mission chief for Belarus, Peter Dohlman.

“Lukashenko has been outspoken in his aversion to being at the mercy of IMF demands. So in the end, it is more of the same – the government puts itself in a further hole, has no strategy to drive economic growth, and knows it can periodically demand Russian support,” Mark McNamee, a London-based analyst at Frontier Strategy Group, told bne IntelliNews. “Belarus clearly feels it can continue doing this for years, or at least sees it as a better alternative than potentially destabilising economic reforms.”

This year, the Belarusian government should repay and service $3.5bn in debt, including $1.65bn of internal and $1.86bn of external state debt. In 2018, the first significant payment of $800mn is due in January, when Belarus needs to service and repay a seven-year Eurobond issue.

In early June, the country’s international reserves stood at $5.24bn. However, around $2bn of this amount was created by the NBB by FX-denominated bonds with different terms of maturity sold to local commercial banks, Minsk-based financial analyst Alexander Mukha told bne IntelliNews.

Deterioration of the economic situation in Belarus puts pressure on these banks’ FX liquidity, and they may be reluctant to purchase new notes from the regulator.

Meanwhile, McNamee believes that the timing may be important for Minsk’s move to tap international debt markets. “Belarus is likely taking advantage of the strong demand for emerging market bonds at the moment and is perhaps hoping to tap into that sentiment,” he says.

Indeed, developing nations have issued $41.6bn in hard-currency bonds this year, a record and up 20% from the same period last year, Bloomberg wrote on June 22.