Moody’s changes outlook on Belarus to negative, affirms ratings

<p> MINSK, Oct 4 - PrimePress. Moody’s Investors Service (Moody’s) on 1 Oct 2021 changed the outlook on the Government of Belarus to negative from stable and affirmed Belarus’ foreign and domestic currency long-term issuer and foreign currency senior unsecured ratings at B3. </p> <p>   </p> <p> As previously reported, contractual relations with Moody’s rating agency were terminated in 2015 at the initiative of the Ministry of Finance of Belarus. Moody’s then assigns ratings to the sovereign on its own initiative. The Ministry of Finance of Belarus currently has government rating agreements with two leading agencies of the Big Three, Fitch and S&amp;P. </p> <p>   </p> <p> “The affirmation of the B3 ratings reflects that, in Moody's baseline view, refinancing over the next 12-18 months will be supported by Belarus's accumulated savings as well as continued financial support from Russia (Baa3 stable). The affirmation also reflects that Belarus benefits from relatively high per-capita wealth despite the inefficiencies of its public sector-dominated economy. Furthermore, the affirmation also takes into account Belarus's moderate government debt levels although fiscal strength remains exposed to a high reliance on foreign-currency debt and high levels of state ownership.” </p> <p>   </p> <p> According to Moody’s, the key drivers for the change in the outlook to negative are: 1) Heightened debt refinancing risks given tightening economic and financial sanctions that constrain financing options; and 2) Belarus's limited reserves reduce capacity to withstand further shocks amid heightened political instability. </p> <p>   </p> <p> Moody’s analysts say the tightening sanctions environment increases risks to debt refinancing, in particular given Belarus' constrained access to external financing sources. Furthermore, Belarus's ongoing tensions with the west have increased the likelihood of additional restrictions being imposed (the EU has indicated that it has started preparing a 5th package of sanctions), with little prospect of existing measures being lifted. </p> <p>   </p> <p> “At the same time, Belarus’ access to western financial markets has effectively closed following the imposition of financial sanctions by the EU and UK which restrict Belarus from accessing their capital markets for new sovereign debt and loans.” </p> <p>   </p> <p> “Belarus also faces an $800 million Eurobond repayment in February 2023 which will add to its financing requirements in the coming years. The negative outlook reflects the risk that Belarus may face a much larger borrowing requirement amid constrained financing sources given the uncertain impact of the tightening sanctions environment on the economy and budget. </p> <p>   </p> <p> “The more stringent economic and financial restrictions imposed by the west will also increase Belarus's dependence on Russia, de facto Belarus' main source of financing. Economic ties between both countries will likely further strengthen as Belarus looks to divert its exports away from western markets. Moody's expects Belarus's integration with Russia to deepen to secure economic and financial support. As a result, Belarus's credit profile will remain highly dependent on its relationship with Russia, which has been volatile in the past.” </p> <p>   </p> <p> Moody’s analysts point out that Belarus’ foreign exchange reserves have recently been stabilized to some extent thanks to the SDR allocation of around $900 million provided by the International Monetary Fund in August 2021. However, despite the stabilization, Belarus’ current account deficits and sizeable public sector debt repayments over the coming years will continue to weigh on the country’s reserve levels. </p> <p>   </p> <p> “As a result, Belarus’ credit profile remains susceptible to the risk of a marked further weakening in the Belarusian ruble or a significant rise in bank deposit outflows, particularly in the event that new sanctions were to materially impact on confidence. While the Belarusian ruble has been relatively stable in recent months, a sustained currency depreciation would add to already significant inflationary pressures -- headline inflation reached 9.8% in August 2021 from 5.5% on average over 2020 -- and likely require the central bank to further draw upon its low foreign exchange reserves to support the exchange rate. A further material deterioration in foreign exchange reserves would lead to a marked worsening in Belarus's already elevated external vulnerability and give rise to negative credit pressures.” </p> <p>   </p> <p> Moody’s expects Russia (and to a lesser extent China) to remain the main source of contingency financing for Belarus, as evidenced by the $1.5 billion loan agreed between Russia and Belarus in 2020 and the recent commitment by Russia to provide around $600 million by the end of 2022, with the potential for further financing support as part of negotiations around increased integration between the two countries. </p> <p>   </p> <p> “Disbursement's from Russia’s loan together with accumulated savings and refinancing on the domestic market will help finance Belarus’ borrowing needs in 2021, with debt amortisations largely due to Russia and the Eurasian Fund for Stabilisation and Development as well as China in line with their sizeable holdings in the overall stock of government debt. Debt repayments will rise in 2023 as a result of the Eurobond maturity and the expected start of repayments to Russia for the nuclear power plant loan.” </p> <p>   </p> <p> As previously reported, Belarus’ sovereign credit ratings assigned by Fitch and S&amp;P currently stand at 'B' with a negative outlook, and were affirmed in May and September 2021, respectively. The ratings are speculative and reflect the high risks of doing business in the country. The negative outlook reflects growing risks to the financial stability of the national banking system, much of which is under state control, in a situation of domestic political crisis. </p> <p>   </p> <p> In Dec 2020, Fitch reported that greater political unrest in Belarus could lead to additional pressure on international reserves and deposit outflows, increasing risks for macroeconomic and financial stability. S&amp;P Global Ratings in Sep 2021 said the negative outlook on Belarus indicates the risk that international sanctions and the protracted political crisis could weigh on the country's economic, balance-of-payments, and fiscal performance more than expected over the next 12 months. End </p>

2021-10-05

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