Fitch affirms Belarus at 'B'; Outlook Negative

<p> MINSK, Nov 8 - PrimePress. Fitch Ratings on 5 Nov 2021 affirmed Belarus's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'B' with a Negative Outlook. </p> <p>   </p> <p> As previously reported, in November 2020 Fitch affirmed Belarus' Long-term foreign currency IDR at 'B', downgrading the Outlook to Negative amid a domestic political crisis. In May 2021, Fitch Ratings affirmed Belarus’ rating at "B," with a negative outlook. The Fitch commentary says: “Belarus’ ratings balance high income per capita, an improved economic policy framework and a clean debt repayment record against low foreign exchange reserves, subdued growth prospects, government debt highly exposed to foreign currency risks, a weak banking sector, high external indebtedness and weak governance indicators relative to rating peers. The negative outlook takes into account the vulnerability that has intensified due to the political crisis in the post-election period, which poses risks to macroeconomic and financial stability. At the same time, the standoff between the government and opposition following the Aug 2020 contested elections remains unresolved.” </p> <p>   </p> <p> Fitch said on 5 Nov: “Belarus’ ratings balance high income per capita, an improved economic policy framework and a clean debt repayment record against low foreign exchange reserves, subdued growth prospects, government debt highly exposed to foreign-currency (FC) risks, a weak banking sector, high external indebtedness and weak governance indicators relative to rating peers. The Negative Outlook reflects vulnerabilities that have been elevated by the post-election political crisis and aggravated by waves of sanctions that pose risks to macroeconomic and financial stability. These risks more than offset temporary improvements in some credit metrics partly supported by higher prices and production of key commodity exports.” </p> <p>   </p> <p> Fitch forecast: Belarus’ GDP may grow 0.7% in 2021 </p> <p>   </p> <p> “Economic performance so far in 2021 has surpassed Fitch's expectations and macroeconomic stability has been maintained despite the imposition of further sanctions.” </p> <p>   </p> <p> “Pressure on the external sector continues to ease, although the sovereign's external position remains relatively strained. International reserve assets increased by USD1.0 billion to USD8.5 billion over the first nine months of the year due to the special drawing rights allocation from the IMF and a current account surplus that has outweighed modest deposit outflows, and the ruble has appreciated modestly. The current account has benefited from higher revenue from key commodity exports and sluggish consumption dampening import growth and Fitch forecasts a surplus of 0.7% of GDP in 2021. For 2022 and 2023, we forecast the current account to return to deficit due to an easing of prices for key exports, higher transportation costs and more subdued growth in IT service exports.” </p> <p>   </p> <p> Fitch reports, total FC sovereign debt repayments in 2022 are $3.23 billion. Around one-third is due to Russia, 17% to China and 11% to the Eurasian Fund for Stabilisation and Development (EFSD); a further third are bonds on the domestic and Russian markets, which Fitch assumes can be rolled over. The authorities are anticipating another lending programme with the EFSD, which together with budget FC revenues should cover the gap. Meeting FC funding needs in 2023 will be more challenging as repayments reach $4 billion, including an $800 million Eurobond maturing in February. Sanctions effectively prevent issuance on major international markets. </p> <p>   </p> <p> Fitch forecasts inflation to average 8.5% between 2021 and 2023 </p> <p>   </p> <p> Fitch says Belarus’ inflation hit a five-year high of 10.2% in September 2021, however “inflation expectations are reasonably contained and renewed deposit dollarisation is not evident”. Administered prices will slow the pass through from global price moves and keep inflation around double digits for most of 2022, after which inflation should ease, but exchange rate pressures could re-emerge. Fitch forecasts inflation to average 8.5% between 2021 and 2023, double the forecast 'B' median of 4.3%. </p> <p>   </p> <p> “General government finances in 2021 have benefited from improved economic growth. Over the first nine months at the state budget level, tax revenues were well above budgetary projections, while spending was slightly below planned levels. Fitch has revised its general government deficit projection to 3.2% of GDP from 5.1% in May. General government finances were hit by an SOE debt restructuring in the first quarter with a budgetary cost of 1% of GDP. There have been no similar subsequent transactions. Government debt including guarantees is forecast to fall to 44% of GDP in 2021 owing to exchange rate appreciation (around 90% of government debt is FC denominated).” </p> <p>   </p> <p> “The 2022 budget projects a narrowing of the deficit to 2.4% of GDP (from 3% in 2021), in line with Fitch's forecast. Revenues will be impacted by a less buoyant external environment and lower growth. Excise duties have been raised and measures to close tax loopholes introduced as the government aims to recoup losses from the Russian oil tax manoeuvre. The authorities view spending control as a key way to preserve macroeconomic stability, with healthcare one of the few areas to see a notable increase. We assume capital spending will be adjusted in the event of revenue shortfalls. However, Fitch expects the oil tax manoeuvre, weak growth and supporting sanctions-affected SOEs to increase pressure on public finances over the medium term. Fitch projects government debt/GDP (including guarantees) at 45.7% at end-2023, well below the forecast peer median of 70.3%.” </p> <p>   </p> <p> Rating sensitivities </p> <p>   </p> <p> Factors that could, individually or collectively, lead to negative rating action/downgrade: </p> <p>   </p> <p> - External Finances: External financing pressures and erosion of international reserves, for example due to failure to secure adequate external financing </p> <p>   </p> <p> - Macro and Structural: Macroeconomic and financial instability precipitated by domestic political unrest or economic policy missteps, and reflected in, for example, rapid bank deposit outflows </p> <p>   </p> <p> - Public Finances: Rapid increase in government debt/GDP, for example from exchange rate shocks, further weakening of growth prospects and/or crystallisation of contingent liabilities. </p> <p>   </p> <p> Factors that could, individually or collectively, lead to positive rating action/upgrade: </p> <p>   </p> <p> - External Finances: Sustained reduction of pressures on the banking sector liquidity and international reserves, for example, due to reduced political uncertainty. </p> <p>   </p> <p> - Public Finances: A decline in government debt/GDP supported by sustained post-coronavirus fiscal consolidation over the medium term and higher growth. 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2021-11-09

Primepress