BELARUS NEWS AND ANALYSIS

DATE:

27/01/2009

S&P: Republic of Belarus Ratings Affirmed On IMF Loan Agreement; Outlook Still Negative

FRANKFURT (Standard & Poor's) On Jan. 26, 2009, Standard & Poor's Ratings Services affirmed its 'B+' foreign currency and 'BB' local currency long-term sovereign ratings and 'B' short-term sovereign credit rating on the Republic of Belarus. The outlook remains negative. The transfer and convertibility assessment, which measures the probability of the sovereign restricting access to foreign exchange by nonsovereign debtors, remains at 'B+'.

"The affirmation reflects the conclusion of a $2.5 billion stand-by loan agreement with the International Monetary Fund (IMF)," said Standard & Poor's credit analyst Kai Stukenbrock. "Together with external funds from other sources, the IMF program addresses the most immediate concerns over Belarus' tightening external liquidity by providing liquidity, improving the economy's competitiveness, and reducing domestic demand."

The deteriorated international economic and financial environment has led to a worsening in Belarus' terms of trade, which, together with reduced export demand from key trade partners, led to a rise in the current account deficit. At the same time, access to international capital markets has practically disappeared, while international reserves began to fall.

The IMF stand-by loan, complemented by further bilateral lending, for example, from Russia, among others, should secure Belarus' external liquidity over the short to medium term. The loan will be disbursed in installments until February 2010. The measures and commitments accompanying the IMF program will further assist Belarus to improve its international competitiveness and reduce domestic demand, which will in turn moderate import demand.

As part of these measures, Belarus devalued the Belarusian ruble by 20% against the U.S. dollar on Jan. 1, 2009. The government also committed to achieving a balanced budget in 2009, requiring considerable cuts in government expenditure. Moreover, the IMF program envisages reduced directed lending, by which government deposits in commercial banks funded rapid credit growth over past years.

As a result of the required adjustments in the Belarusian economy and weak export demand, growth will be nearly zero in 2009 (compared with average growth of nearly 10% in 2004-2008), and domestic demand will contract.

The negative outlook reflects the challenges posed by the adjustments required in the Belarusian economy. Currently secured external financing provides some breathing space to initiate economic restructuring. This buffer could be reduced, however, if external demand from key trading partners were to deteriorate faster or for longer than we currently expect, or if prices for natural gas from Russia, set to increase only moderately in 2009, should jump in 2010.

"Failure to reduce the current account deficit, and stagnating levels of reserve assets--despite considerable inflows--could lead us to lower the ratings," said Mr. Stukenbrock. "Conversely, bolstering the level of foreign reserves in a sustainable way, while at the same time undertaking measures to strengthen external competitiveness and reducing the country's dependence on imports, would be preconditions for revising the outlook to stable."

Source:

http://www.cbonds.info/all/eng/news/index.phtml/params/id/421929

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