Belarus Hopes to Increase its Sovereign Credit Rating
On 21 February 2012 Belarusian finance minister Andrei Kharkovec announced Belarus' plan to restore its positions in international ratings which suffered following the recent economic crisis. The state news agency Belta also announced that the main Chinese rating agency Dagong will give Belarus a sovereign credit rating in the near future. Authorities hope to use it in order to attract Asian investments into the Belarusian economy.
European states and companies are reluctant to invest huge sums of money into the Belarusian economy which is still on the brink of economic collapse with its B- credit rating, one that is very close to the rating of Greece. Only consistent market reforms, renewal of cooperation with the IMF and large-scale privatisation of the state property may improve the situation.
Belarus Rating Before and After the Crisis
Since 2001 Belarus has been actively trying to obtain a sovereign credit rating from a recognised international organisation. It received its first rating only in 2007 from Standard & Poor’s. The agency announced Belarus’ long- and short-term rating on liabilities in foreign currency (B+/B) and local currency (BB/B) with a stable economic outlook for the country. Moody’s, another international agency, assessed Belarus credibility at the level of B1 in August 2007 and confirmed S&P’s “stable” forecast for the Belarusian economy.
However, Belarus lost its stable positions in international ratings after the beginning of the severe economic crisis in April-May 2011. For example, Standard & Poor’s reduced rating of Belarusian obligations in foreign and local currency from B/B to B-/C with a negative outlook. They explained this step by the increase of Belarus’ dependence on foreign borrowing and moved it into a group of countries with the highest economic risks such as Greece and Vietnam. Over 2011, Moody’s lowered its rating of Belarus from B1 to B3 and made a negative outlook for the economy.
Nowadays international agencies assess Belarusian obligations as highly speculative and regard the Belarusian economy as almost in default. Today the gap in economic development and stability is even more evident between Belarus and its neighbours. Just compare: Estonia’s rating is higher than Belarusian one by 12 points (AA-), Lithuania, Kazakhstan and Russia have BBB rating (seven points higher) while Latvia and Azerbaijan secured BB+ rating (five points higher). It means that Belarus has the lowest sovereign rating of all post-Soviet countries that ever received it.
Why Sovereign Rating Is So Important?
The sovereign credit rating evaluates the country's ability to fulfil its financial obligations to foreign investors and creditors. In order to give the country a sovereign rating, international agencies usually assess the GDP growth, GDP per capita, consumer price index, the level of gross external debt, state budget deficit, the level of foreign exchange reserves, the capital account and political situation in the state.
The rating directly influences an interest rate of external loans for the state, national banks and companies. This especially concerns the so-called 'eurobonds'. Countries generally use eurobonds as long-term liabilities in order to cover present-day expenses or refinance their external debt.
In July 2010, Deutsche Bank, BNP Paribas, The Royal Bank of Scotland and Russian Sberbank issued their first Belarusian eurobonds for $600m with an 8.75% yield. Next month the Belarusian Ministry of Finance asked to issue additional obligations of $400m. On 26 January 2011 Belarus decided to issue another $800m in eurobonds with an 8.95% yield.
However, eurobonds became not as beneficial for Belarusian authorities after the crisis as they used to be. According to Bloomberg, on 3 October 2011 the yield of eurobonds issued in 2010 has increased to 20.28%. What is more important, articles of association from foreign companies in some cases restrict investments in capital issues of countries with a credit rating that stands at less than B+.
Belarus Becomes Less Attractive to Foreign Investors
At the same time, Belarus has decreased in many other international ratings. The International Finance Corporation and World Bank published the new Doing Business ranking that illustrates freedom and easiness of entrepreneurship in different countries of the world. They ranked Belarus 69 out of 183 states in 2011 whereas it was at the 58th place in 2009.
Moreover, Belarus has the poorest rule of law in Eastern Europe and South Caucasus, according to the World Bank’s aggregate statistics from 1996 to 2010. It is also the worst on 'regulatory quality' which means ability of government to formulate policies that promote private sector development. Belarus is also becoming more corrupted while it was the least corrupt state in the post-Soviet space in 2000. All these tendencies show the ineffectiveness of the current Belarusian authorities on their path to a modern market economy.
Western countries do not want to invest in the Soviet conservation area and Belarusian economy does need modernization. The Ministry of Economics estimated the level of worn-out productive capacities at 86.7% in 2006 and it managed to reduce this parameter to 61.4% in 2011 only due to massive state investments. The level of foreign direct investments in Belarus is still lowest in the region and the Belarusian government needs to improve the image of the Belarusian economy in order to deal with this issue.
Eurobonds as Security Cushion
The reason why Belarusian authorities became concerned with standings of the country in international ratings lies in their wish to refinance the public external debt of $13.4bn with the help of new eurobonds. The existing debt may soon overstep the absolute level that is stipulated in the 2012 budget and then it will be hardly possible for Belarus to pay off the IMF loan in 2012-2014.
Despite sceptical forecasts by some observers about the future of the Belarusian economy, the hopes of an increase in international standings are not illusory. The conclusion of extremely beneficial oil and gas agreements with Moscow last year, large-scale privatisation plans and tangible growth of foreign exchange reserves at the end of 2011 may have a soothing effect on international rating agencies. However, Belarus should not hope for a stable high position in their ratings before the renewal of close cooperation with the IMF and implementation of true market reforms.
Moscow Behind Us And Before Us – Digest of Belarusian Analytics
The fresh conflict between the EU and Belarus kept the analytical community busy and organised civil society. Experts also analysed why Belarusian authorities prefer to be pro-Russian and whether the EU has any leverage against Belarusian authorities.
Moscow Behind Us! And Before Us – political analyst Andrei Fedorov talks about the possible actions of Russia towards Belarus after the recent Russian presidential elections. Expert notes that the Belarusian government chooses economic subordination to Moscow as a lesser evil compared to the highly probable collapse of the economy. Fedorov warns that the officials in Minsk should take into account that this option certainly will lead to further significant limitations of its political power.
We have Already Passed The Point of No Return in the Relationship with the EU – Piotr Martsau, editor-in-chief of Belorusskaya Delovaya Gazeta, answers on questions of European Radio for Belarus: Why the West trusts neither the Belarusian government nor the opposition, Why EU’s position does not satisfy him, and What Lukashenka is waiting for.
Discussion – responding to the recent diplomatic conflict between Belarus and the EU, TUT.by initiated a debate on the causes of conflict and its further development. The debate participants are Foreign Ministry spokesman Andrei Savinykh, political observer Alexander Klaskovsky, political analyst Vadim Gigin, and BISS academic director Alexei Pikulik.
Conflict with the EU: Lost in Translation – BISS analysts Alexei Pikulik and Dzianis Melyantsou analyse the causes of the diplomatic crisis and the possible steps and the limits of the escalation of the political EU-Belarus conflict. In their opinion, the parties must refrain from further actions that could result in conflict escalation, and to develop a clear and understandable road map for resolving the conflict.
Isolation and Engagement
For the Country or Against Lukashenka Yury Zisser publishes a short opinion, in which he suggests that notions “for the country” and “against Lukashenka” are mixed. He further elaborates that those against Lukashenko view events from the position of whether they are beneficial for Lukashenko, as they only care about vengeance against him disregarding the country and the people. The author opines that it would be more appropriate to assess events in terms of their benefit for the country, the people, the economy etc. The opinion resulted in the a range of comments from readers available in the corresponding section.
Alexei Pikulik: Opportunities of EU Influence on the Situation in Belarus are Limited BISS Academic Director Alexei Pikulik in his interview to n-europe tells about EU sanctions against Belarus, and future strategies of electoral campaigns. In particular, the expert considers the ineffective policy of EU sanctions with regards to Belarus and offers to return to the «Realpolitik» – "to recreate the missing arm through the expansion of contacts, creating strong links both within civil society and opposition, and among the bureaucracy."
Elections and opposition
Emergency Election Commission – Alexei Medvetsky notes that the September parliamentary elections will be much more democratic than any of the three previous campaigns. The intrigue of the elections-2012 lies in the fact that only part of the existing MPs will be able to pass into the narrow framework articulated by the president of the 25 percent quota. The intrigue is complicated by the fact that this time the elections will be under a particularly close scrutiny of the KGB.
Waiting for the Thaw: Prospects for the Consolidation of Opposition – political analyst Yuri Chausov notes that the current political system in Belarus reserves for the political opposition only a role of a media construct. Aware of this situation, the political opposition should build their tactics based on achievable goals within the big game of real political actors. These goals can be either increased the survival of oppositional structures, or perhaps their transformation from a policy object into a subject, going beyond what is usually called "oppositional ghetto."
Unions and Media
Are the Independent Democratic Trade Unions of Belarus the Engine of Social Reforms? Eastern Europe Studies Centre (EESC) presents its newest study on the present situation in the democratic trade union movement of Belarus. It outlines the ways to achieve the most efficient use of the potential of trade unions in the formation of public opinion of the country. The target group of the given public opinion survey are the members and leaders of the independent democratic trade unions of Belarus as well as the members of other NGO's created under them.
ByNet: Everyone Plays for Themselves – Blogger Ales Gorskiy discusses the situation in Belarusian independent online media, and suggests that some of the most popular independent media resources lack objectivity, practise censorship and engage in propaganda similar to government media. He concludes that current opposition media would lose popularity if a new resource, free from censorship and propaganda, appeared in Belarus. First reaction to the article is already available from Svetlana Kalinkina.
Hymns of Hate – journalist Svetlana Kalinkina tries to answer the question why the Belarusian propaganda persistently attacks Poland. She comes to the conclusion that Poland is the only country in Europe which is trying to engage Belarus in the European Union, which contradicts the current geopolitical priorities of the Belarusian authorities.
No answers. Why I hate the Internet – In the TUT.BY studio Viktor Martinovich and Victor Malishevskiy reflect on the issues, if the Internet is an area of freedom or a "zombie box", a tool of unification or separation of people, and how to make the Internet "smarter" and "kinder".
Belarus Digest prepared this overview on the basis of materials provided by Pact. This digest attempts to give a richer picture of the recent political and civil society events in Belarus. It often goes beyond the hot stories already available in English-language media.