Belarus. Summary. Economic Indicators

Transcription

1 Belarus Summary Moody s Caa1 / S&P B- / Fitch B- 1 Economy: Agriculture 8%, Industry 40%, Services 52% Belarus is a small, open economy that is very dependent on its main trade partner, Russia. The economy is recovering after a series of external shocks resulting in a major economic crisis resulting in an economic contraction of nearly 5% in The government has tightened fiscal and monetary policy and avoided a balance-of-payment crisis, but more needs to be done to tackle structural economic problems, which include a large and inefficient public sector. Real GDP grew an estimated 1% in 2017, the current account is near balance and foreign reserves have almost doubled from recent lows. Economic Indicators F 2018F Population (Millions) GDP per Capita (USD) 7,977 8,316 5,941 4,989 5,585 5,745 Nominal GDP (USD Billions) Real GDP (%) Year-End CPI (%) Fiscal Balance (% of GDP) Interest (% of Revenues) FC Debt/Public Debt (%) Government Debt (% of GDP) Government Debt (% of Revenue) Current Account (% of GDP) FDI (% of GDP) External Debt (% of GDP) Foreign Reserves/External Debt (%) Foreign Reserves (Mo. of imports) Foreign Reserves (% of GDP) As of November 2017 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: Lazard, Central Bank, Haver Analytics, IMF 119

2 Lazard Emerging Markets Debt Rating History Below is a history of the country s foreign and local currency ratings by the major agencies dating back to We have also included a chart of the country s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency B+ B B- Local Currency BB- BB+ BB BB- B+ B CCC+ B- CCC+ CCC CCC Moody s S&P Moody s S&P As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Bloomberg, Fitch, Moody s, Standard and Poor s Bond Spreads Belarus 2010 EMBIGD 2017 As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 120

3 Belarus Strengths Political Stability and Willingness to Adjust Belarus is a democracy, but has been ruled by the same autocrat, Alexander Lukashenko, since 1994 and has been labeled as Europe s last dictatorship. Lukashenko has used several referenda to remove term limits and remain in power and at 61, he is still young and likely to remain in power for the foreseeable future. He recently won his fifth term with 83.5% of the vote while his closest rival garnered less than 5%. However, international observers indicated that voting standards were subpar. 2 The opposition is fragmented and marginalized, with limited access to the media, and street protests are not tolerated. 3 While negative on many fronts, this political model makes economic adjustments, such as the devaluation of the ruble during the liquidity crises in 2011 and 2015, politically feasible. Relations with Russia Since its independence in 1991, Belarus has maintained strong ties with Russia, a proven ally during times of distress. For example, in June 2014, Belarus received US$2.0 billion from Russia and, more recently, Russia lent $760 million to assist Belarus s debt repayment efforts. 4 The two economies are tied through production chains and Russia supplies energy at heavily discounted prices. Estimates suggest that Russian subsidies over the past 20 years have reached 15% of Belarus s annual GDP. 5 Belarus recently had a dispute about gas prices with Russia, but this was resolved in Russia accounts for 78% of foreign direct investment (FDI) 6, more than 40% of exports, and more than half of all imports. 7 Additionally, a quarter of Belarus s banking assets belong to Russian banks. 8 As Russia continues to divert activity away from Ukraine, Belarus has become a key transit point for Russia. Along with Kazakhstan, Belarus and Russia formed the Eurasian Economic Union, which took effect in January Russia has also committed to financing a nuclear power plant for Belarus. Despite frequent and sometimes heightened periods of tension between the two countries, it seems unlikely that Russia would withdraw support. However, while this strong alliance has been a key strength, it has recently been a source of weakness due to Russia s annexation of Crimea. Belarus s government estimates a negative impact of $3 billion as a result of the incursion. 9 Relations with EU and China Belarus is looking to diversify its economic partners and improve its relationship with the European Union (EU) and China. The EU recently lifted sanctions on Belarus, which should help to unlock financing from the European Bank for Restructuring Development and the European Investment Bank. Belarus is also engaged with China on the One Belt, One Road initiative as a potential source of additional capital. Finally, Belarus is opening up to new negotiations with the World Trade Organization and improving ties with bilateral entities, including the World Bank. 10 Weaknesses Small, Vulnerable Economy Belarus is a small, open, economy with trade at 125% of GDP, making it vulnerable to the economic performance of its main trading partner, Russia. In 2015 and 2016, the economy contracted by 6.2% mainly because of the Russian recession. In 2017, we expect Belarus to benefit from the Russian economic recovery. 121

4 Lazard Emerging Markets Debt Unsustainable Macroeconomic Model Belarus has a highly centralized economic model with a large state role. Prices, production of goods and services, and lending are directed by the government. State-owned enterprises (SOE), which are much less efficient than the private sector, represent 75% of the total economy. Thus, although investment is high, it tends to be inefficient. Additionally, infrastructure is outdated and energy efficiency is low. Belarus s main policy objective has been growth via aggressive monetary and off-budget fiscal expansion, which has created large external imbalances, leading to devaluations and high inflation. The IMF noted that the combination of an ineffective economic model and low buffers makes Belarus highly vulnerable to shocks. 11 The IMF advocates a more market-oriented model including price liberalization, the elimination of tariffs, and the privatization of SOEs. Weak Public Balance Sheet The deficit of public companies has pushed public debt levels, including guaranteed debt, significantly higher to an estimated 59% of GDP in 2017, compared to around 37% of GDP in This increase is due to the sharp exchange-rate depreciation, quasi-fiscal costs, recapitalizations, and new government-guaranteed debt. The government is taking a series of measures to reduce the deficit, including quasi-fiscal costs. 12 Weak Banking System The banking system s balance sheet is weak, especially as public companies struggle to repay loans because of the recent recession and weak economic recovery. Nonperforming loans are high at 12% and continuing to rise, while capital adequacy ratios are on a downward trend and are currently close to 16%. Public banks amount to about two-thirds of the banking system assets; thus, any problem in the system will likely require some recapitalization from the central government. On a more positive note, deposit outflows have stopped. Poor External Liquidity and Recurring Balance-of- Payment Pressures Belarus remains dependent on foreign inflows despite capital controls. The country experienced two severe balance-of-payments crises in six years. The first, in 2011, followed loose fiscal and monetary policies that included wage hikes, credit growth, and negative real interest rates. This caused pressure on the exchange-rate peg, leading to depletion of foreign reserves to less than two months of imports and, eventually, a bailout from Russia. The second began in 2013 when high economic growth led to a double-digit current account deficit and a sharp decline in foreign reserves, forcing the government to move toward a more flexible exchange rate. The current account deficit has since stabilized at roughly 3% 4% of GDP and financing has picked up, helping to rebuild foreign reserves, which remain at relatively low levels. Concentration of Power President Lukashenko, dubbed Europe s last dictator, has alienated Belarus from the EU and the United States, limiting the country s funding and assistance options to Russia and, more recently, China. With the exception of some privatizations, Belarus has shown very little interest in opening up the economy, or reducing the role of the state. For example, the government used SOEs at the outset of the 2015 elections to create artificial employment and reduce social tension

5 Belarus Country Background Size Capital Population 207,595 KM 2 (86th) Minsk 9.6 Million Religion Orthodox 48.3%, Catholic 7.1%, Other 44.6% Median Age 40.0 Years Literacy Rate 99.7% Independence 25 August 1991 Political System Government Leadership Next Election 2020 Legislative Branch Presidential Republic President Alexander Lukashenko; Prime Minister Andrey Kobyakov Bicameral National Assembly Economy Agriculture 8.1%, Industry 39.6%, Services 52.3% Labor Force Agriculture 9.7%, Industry 23.4%, Services 66.8% Merchandise Exports Machinery and Equipment, Mineral Products, Chemicals, Metals, Textiles, Foodstuffs Export Partners Russia 46.3%, Ukraine 12.2%, United Kingdom 4.6%, Germany 4.0% Currency Belarus Ruble (BYR) As of November 2017 Source: CIA 123

6 Lazard Emerging Markets Debt Country Timeline 1995 Friendship and cooperation pact signed with Russia. National referenda result in a new flag almost identical to that of the former Soviet republic, and the restoration of Russian as an official language. The president's powers are also widened. There are protests on the streets, but these are broken up Council of Europe condemns human rights abuses after report accuses authorities of blocking investigation into the fate of four men with opposition links who disappeared in Minsk in 1999 and EU imposes travel restrictions on number of senior officials. Referendum backs change allowing president to serve more than previous limit of two terms. Opposition parties fail to win a single seat in parliamentary elections held at same time. Western observers say vote is neither free nor fair. Street protests ensue. Demonstrators clash with police and dozens are arrested President Lukashenko declared winner by landslide in elections condemned as unfair by Western observers. Opposition arrests reported as protesters in capital demand fresh vote. Defeated presidential election candidate Alexander Kozulin convicted of hooliganism and incitement to mass disorder. He is jailed for five and a half years Russia cuts the supply along an oil export pipeline to Europe amid a row with Belarus over taxation and allegations of siphoning. The dispute ends after Russia agrees to cut the oil duty it will charge Belarus President Lukashenko orders the shutdown of transit of Russian gas to Europe, escalating a new gas war after Moscow slashes supplies to Minsk in a debt dispute. Russia's Gazprom state gas company later resumes supplies after Belarus pays the outstanding debt. Presidential elections. President Lukashenko declared winner. Opposition and western observers allege vote rigging. Mass protests in Minsk are broken up by force, with 600 arrests President Lukashenko is inaugurated for a fourth term in office. The EU reinstates a travel ban on him and freezes his assets, while the US imposes stricter financial controls and widens its travel bans on senior officials. Belarus threatens the EU with retaliation over the sanctions and pushes ahead with plans to put more than 30 political activists, including four opposition leaders, on trial over the December protests. Belarus asks the IMF for an emergency loan of up to $8 billion over the balance of payments crisis. The government raises its main interest rate from 14% to 16% and freezes prices on a number of staple foods. Panic buying of basic goods ensues. Russia halves electricity supplies to Belarus over unpaid bills and in an effort to persuade the government to privatise lucrative assets. Belarus seeks a Russian-led $1.2 billion bailout, which is conditional on reforms. Russia agrees to sell Belarus gas at 60% below the price charged to other European countries, in return for the Russian gas monopoly Gazprom taking full ownership of the Belarussian gas pipeline firm Beltranshaz. Prominent human rights activist Ales Belyatski is found guilty of tax evasion and sentenced to four and a half years in prison. The EU says the case is politically motivated and calls for Mr Belyatski's immediate release President Lukashenko replaces longstanding foreign minister Sergei Martynov, one of the few officials that the European Union was prepared to talk to, with a close aide. Earlier in the month he sacked the air defence and border guard commanders and expelled the Swedish ambassador after human-rights activists flew into Belarusian airspace to drop teddy bears with pro-democracy messages Belarus asks Russia to deploy extra fighter jets and military transport aircraft to its territory after NATO boosts its forces in the neighboring Baltic countries. The moves come amid increasing tension caused by the crisis in Ukraine and Russia's annexation of Crimea President Lukashenko wins fifth presidential term. No significant opposition candidate was allowed to stand. Source: BBC 124

7 Belarus Notes 1 As of December Belarus election: Alexander Lukashenko wins fifth term with election landslide, The Guardian, 12 October 2015, accessed on 24 November 2015, 3 Bershidsky, Leonid, No, Lukashenko Is Not Defecting to Europe, Bloomberg View, 12 October 2015, accessed on November 24, 2015, 4 Belarus Receives $760 Million Loan From Russia, The Moscow Times, 28 July 2015, accessed on 27 November 2015, 5 lachnovic, Ales How Russia s Subsidies Save The Belarusian Economy, Belarus Digest, 25 August 2014, accessed on 24 November 2015, 6 Based on 2015 YTD data as of 24 November 2015, National Bank of the Republic of Belarus, accessed on 24 November 2015, 7 Foreign Trade of Belarus, Ministry of Foreign Affairs of the Republic of Belarus, accessed on 24 November 2015, 8 Republic of Belarus 2014 Article IV Consultation Staff Report; Press Release; and Statement by the Executive Director for the Republic of Belarus, International Monetary Fund, IMF Country Report No. 14/226, July 2014, 9 Belarus Receives $760 Million Loan From Russia, The Moscow Times, 28 July 2015, accessed on 27 November 2015, 10 Republic of Belarus, Staff Report for the 2016 Article IV Consultation, September external/pubs/ft/scr/2016/cr16298.pdf 11 Belarus: 2015 Article IV Consultation, International Monetary Fund, IMF Country Report No. 15/136, accessed on 24 November 2015, 12 Republic of Belarus, Staff Report for the 2016 Article IV Consultation, September external/pubs/ft/scr/2016/cr16298.pdf 13 Measures to support industry will not save Belarusian economy from further fall, Belarus in Focus, 24 November 2015, accessed on 24 November 2015, 125

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