Russia suspends allocation of $800mn loans to Belarus, Minsk says

Russia suspends allocation of $800mn loans to Belarus, Minsk says
Belarusian Finance Minister Maksim Yermolovich says that a $600mn loan by Russia has been delayed / wiki
By bne IntelliNews June 14, 2019

Russia has suspended allocation of loans to Belarus for a total amount of $800mn, according to Belarusian Finance Minister Maksim Yermolovich.

"But, as turned out, there are some difficulties with the Russian $600mn loan. The decision on the $200mn loan from [the Russia-led Eurasian Fund for Stabilisation and Development] EFSD has been delayed for some reason too, although Belarus has fulfilled all requirements," state news agency BELTA quoted the minister as saying on June 12.

This year, Belarus was planning to repay external commitments with the help of a $600mn loan of the Russian government, a new $200mn tranche of the EFSD the budget surplus ($700mn), and through borrowings on the domestic market.

Earlier this week, Anton Siluanov, Russian First Deputy PM and Finance Minister, said that Russia is not going to provide new loans to Belarus nor discuss possible compensation for Russia’s so-called tax manoeuvre in the oil sector until the two countries agree on a vision for their further "integration".

The official told journalists on June 8 that Moscow and Minsk have agreed that, "we need to make comprehensive decisions that would concern a vision for our further integration" regarding the so-called Union State treaty. "Then we will understand the level of our financial relations," Siluanov added.

Belarusian President Aleksandr Lukashenko and his Russian counterpart Vladimir Putin have discussed possible integration of the two countries "very tentatively" and instructed the governments to find areas of common interest before 21 June.

On May 27, Belarusian Minister of Foreign Affairs Vladimir Makei said in Moscow at the talks with his Russian counterpart Sergei Lavrov said that the Belarus-Russia integration groups set up at the instruction of the two presidents will soon unveil the results of its work.

No details of the proposals have so far been made public, which has rose fears over possible loss of Belarus' sovereignty in exchange for Moscow's energy subsidies and loan support.

Belarus faces a new economic crisis if Minsk fails to secure full compensation from Russia for losses triggered by the latter’s new energy taxation system (the so-called tax manoeuvre).

According to the Belarusian finance ministry, the country’s budget revenue losses from the tax manoeuvre in 2019 alone were estimated at BYN600mn ($300mn), and that the losses might total $2bn by the end of 2024. However, in December, Lukashenko's spokesperson said in a televised interview that Minsk already lost $3.6bn due to Russia's cut of energy subsidies to Belarus.

Due to Moscow's tax manoeuvre Belarus will lose extra $11bn within the next four years, the spokesperson added. The tax manoeuvre shifts the tax burden from export duty on oil and petroleum products to mineral extraction tax (MET) on oil production. It envisages a gradual reduction in the rate of export duty on oil and petroleum products from 30% to zero in the period from 2019 to 2024 and a proportionate increase in MET.

In April, Putin greenlighted the allocation of a new $600mn government loan to Belarus. Minsk would use the money to repay previous Russian loans. The two governments are discussing procedures needed for signing the loan agreement.

The Russia-led EFSD is also considering the allocation of the seventh $200mn tranche to Minsk. In October 2018, the EFSD allocated the sixth $200mn support tranche to cash-strapped Belarus from the lender's $2bn loan agreed with Minsk in 2016.

The allocation of the tranche followed reports that Moscow intends to suspend the allocation of new tranches from $2bn support package agreed between Minsk and the EFSD, as well as suspend negotiations on a new $1bn intergovernmental loan, which could be a painful blow for the reserves.