Experts believe Belarus is losing $2bn annually due to new duties placed by Russia on its oil deliveries. Since January 1st, 2010, Russia has been collecting export fees on raw materials supplied to Belarus for resale. Belarus asserts that this measure contradicts the terms of the Customs Union. The duties are impairing the work of Belarus’ oil processing plants in Novopolotsk and Mozyr, while influencing the country’s financial state. To balance the state budget and external account, Belarus is resorting to foreign loans. Previously, Minsk enjoyed active co-operation with the International Monetary Fund, compensating it for losses incurred by Moscow’s sharp increase in gas prices. However, this March, Belarus received its final tranche from the IMF, with the total volume of loans reaching $3.5bn. Further loans will not be immediately forthcoming.
The Chairman of the National Bank, Piotr Prokopovich, recently announced that collaboration with the IMF has been useful to Belarus, since its loans are offered at low rates, and on convenient redemption terms. However, he stresses that ‘the Fund never gives resources without special conditions, which don’t always contribute to the enhancement of a country’s economic development’. He explains that the Belarusian economic model centres on improving citizens’ standard of living and, in this respect, Minsk and the IMF differ in their standpoint.
By late 2010, the Belarusian Government plans to ensure minimum salaries countrywide of $500 (in equivalent). According to the National Statistical Committee, in June, the average salary stood at Br1,298,000 – or $435. The IMF has criticised these plans as imprudent, recommending a temporary freeze on salaries. However, Mr. Prokopovich views the rise as ‘an objective necessity’.
The placement of Eurobonds is an alternative to further IMF loans, since they allow macroeconomic conditions to be controlled freely (without freezing salaries). They operate on a free market, without state interference regarding pricing or privatisation, giving the Government and the National Bank space to manoeuvre, while receiving much needed funds.
The 2011 draft state budget envisages a deficit of 3 percent of GDP. The Finance Minister, Andrei Kharkovets, explains that some part of this deficit - $826m (in equivalent) – is to be financed from external sources, via Eurobonds. Foreign investors are showing increasing interest in Belarusian bonds, with the first issue (in July) attracting 145 market participants from all over the world, generating $600m for Belarus. In August, Minsk issued more bonds and attracted another $400m. Authoritative BNP Paribas, Deutsche Bank, The Royal Bank of Scotland and Russia’s Sberbank have jointly organised the issue of these Belarusian bonds, with ASB Belarusbank. The first issue has a yield of 9 percent, which is relatively high but is in keeping with Belarus’ position as a novice on the global borrowing market; being an ‘unknown quantity’, the bonds are viewed as more high risk. The second issue has slightly less profitable terms, with a rate of 8.25 percent. Mr. Kharkovets notes that such rates will fall as trust grows in Belarusian bonds, with our state receiving loans on more profitable terms.
Oleg Andreev, a specialist in international and stock operations at a Belarusian commercial bank, views our joining of the international capital market as a positive trend, raising large financial institutions’ interest in Belarus. The state, companies and banks alike will be able to place their bonds on foreign markets in the future (ASB Belarusbank has already voiced such plans). As result, borrowing sources will be diversified.
Investors buying Belarusian bonds are thoroughly studying the economic processes of the country, stimulating the Government to ensure its decisions are considered and transparent. Experts say that, to ensure the redemption of Eurobonds, a high pace of GDP growth is vital (at least 8-9 percent). The Belarusian Government aims for economic growth of 11 percent by late 2010.
By Vitaly Volyanyuk
