Fitch affirms Belarus’ issuer default rating at ‘B’; Outlook Stable

<p> </p> <p> MINSK, May 18 - PrimePress. On May 15, 2020, Fitch Ratings affirmed Belarus’ long-term issuer default rating at ‘B’, Outlook Stable. </p> <p>   </p> <p> The affirmation reflects Fitch's expectation that Belarus's improved policy mix will preserve macroeconomic stability and manage refinancing risks on large foreign-currency debt payments through access to external bilateral and multilateral financing, Fitch experts say. </p> <p>   </p> <p> Belarus’ rating reflects improved macroeconomic stability, high income per capita, relatively prudent fiscal policy and a clean debt repayment record against low foreign exchange reserves, weak 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. Despite progress towards diversification, Belarus maintains high economic dependence on Russia, and so is vulnerable to shifts in Russian policy. Belarus’ response to the health crisis is restrained in comparison with regional and rating peers. With multilateral support on health and social protection, current measures amount to 1.2% of GDP. </p> <p>   </p> <p> Fitch forecasts the Belarussian economy will contract by 5% in 2020 reflecting the severe deterioration in external demand, the impact of containment measures (albeit with lower intensity relative to other countries) and limited space for counter-cyclical policy stimulus. Under our baseline scenario, the economy recovers to 3.2% in 2021, in line with improved global growth prospects. </p> <p>   </p> <p> Fitch forecasts the adjusted general government budget deficit will reach 4.3% of GDP in 2020 (surplus of 1.6% in 2019), reflecting a deficit of 2% of GDP in the officially reported consolidated budget. The adjusted general government deficit will decline to 2.9% of GDP in 2021. The 2020 budget does not include compensation for Russia’s oil tax maneuver. </p> <p>   </p> <p> Fitch forecasts that the general government debt will increase to 49.6% of GDP (including 7.7% in government guarantees), up from 41.9% (5.7% in guarantees) in 2019 but still below the forecast 'B' median of 60%, due to the impact of the Belarusian ruble (19% depreciation against the US dollar yoy) and the contraction of the economy. Debt dynamics are highly vulnerable to currency risk due to the large share of foreign-currency debt (92.1% at end-2019). </p> <p>   </p> <p> Foreign currency debt amortizations in 2020 equal $2.5 billion, of which $797million (31% of total) has been paid in the first four months of the year. Belarus has applied for the IMF Rapid Financing Instrument ($900m) and is also negotiating two bilateral loans with China. Although Belarus postponed its 1Q20 plan for a Eurobond issuance, it has issued $135.6 million in the Russian market and could issue a similar amount later in the year. </p> <p>   </p> <p> The government holds $4.2 billion in foreign currency cash (part of international reserves) to provide short-term financing flexibility. Belarus plans to finance its consolidated budget deficit using accumulated local currency deposits (Br5 billion in May or 3.7% of 2020 GDP). </p> <p>   </p> <p> Belarus’ international reserves declined by $1.1 billion to $7.8 billion in March, reflecting debt service and FX intervention to smooth the volatility derived from the sharp Russian ruble depreciation. Although reserves recovered to $7.9 billion in April, Fitch forecast that reserves will finish 2020 at $7.1 billion due to public debt repayment and lower FX purchases in the local market by the National Bank of Belarus (NBB) compared with previous years. As international reserves will remain roughly stable in 2021, reserve coverage will average 2.1 months in 2020-2021, lower than the forecast ‘B’ median average of 3.9 months. </p> <p>   </p> <p> The current account deficit will widen moderately to 3.1% of GDP in 2020, up from 1.8% of GDP in 2019 but below the forecast 5.2% for the ‘B’ median. </p> <p>   </p> <p> Inflation is forecast to average 5.6% in 2020, slightly above the forecast 5% for the ‘B’ median. </p> <p>   </p> <p> Despite no formal conclusion of integration negotiations between Belarus and Russia, Fitch neither anticipates budget compensation or bilateral lending in 2020-2021 nor additional disruptions in the supply of oil in the near term. </p> <p>   </p> <p> Among the factors that could lead to positive rating upgrade, Fitch points at a possible increase in international reserves, improvement in Belarus’ medium-term growth prospects in the context of macroeconomic stability, for example stemming from implementation of structural reforms. </p> <p>   </p> <p> Fitch names erosion of international reserves, for example due to failure to secure external financing, sustained increase in government debt, or policy slippage or inconsistencies that lead to increased risks for macroeconomic stability and increase external vulnerabilities as the factors that could lead to negative rating action/downgrade. 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2020-05-19

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