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The resumption of disbursements from the Eurasian Fund for Stabilization and Development (EFSD) and the settlement of the latest energy dispute between Belarus and Russia reduce, but do not completely eliminate, uncertainty over Belarus's ability to successfully execute its 2017 financing plan, Fitch Ratings says. Improved access to external sources of financing and reduced pressures on foreign currency revenues will support Belarus's strategy to meet its January 2018 external bond repayment.
According to press reports, Belarus received a USD300 million disbursement from the EFSD on Wednesday. This was delayed from September, and was the third due under the USD2 billion two-year programme for budget and international reserve support agreed in March 2016. The country received two disbursements totalling USD800 million in 2016.
Russia and Belarus have resolved a dispute over gas prices that began last year, following a meeting between Belarus's President Alexander Lukashenko and Russian President Vladimir Putin at the beginning of April. Russia will normalise oil supply volumes to Belarus (the new agreement states 24 million tons of oil per year until 2024), and Belarus will make delayed payments to Russia for gas supplies.
Belarus's Finance Minister and First Deputy Prime Minister have said that Russia could also provide financing to Belarus, although the full amount and terms are not clear. One report said that Russia would refinance around USD700 million of existing debt.
Belarus is heavily dependent on Russia for trade and external financing support, notwithstanding periodic energy disputes since the early 2000s. Avoiding a more protracted dispute reduces risks to the balance of payments, government revenues from customs duty, and overall economic activity from reduced Russian oil supply to Belarus's refineries, although we still expect the economy to remain in recession in 2017.
This in turn should support the government's financing plan, which envisages an increase in non-debt foreign currency revenues to USD1.8 billion in 2017, from USD1.2 billion last year, and EFSD disbursements worth USD1 billion. However, reducing external liquidity risk ahead of January's USD800 million international bond maturity will also depend on tapping additional sources of foreign exchange, and hence on other elements of the financing plan - notably a return to international capital market issuance, which the government foresees providing USD800 million, and the government's ability to borrow in foreign currency in the domestic market.
The external financing vulnerability created by low international reserves and high net external debt is a long-standing credit weakness that is reflected in Belarus's low sovereign rating, which we affirmed at 'B-'/Stable in February. Recent developments are consistent with our assumption that Russia would provide ad hoc financial support. The Belarusian government has indicated that it may seek IMF assistance, but our forecasts do not incorporate this, as the timing of any agreement is highly uncertain.
