Moody's Downgrades Belarus A Notch On Financing Gaps, Growth Changes

Moody's Investors Service downgraded Belarus's ratings a notch because of financing gaps in the near term and the Eastern European nation's anticipated struggles in the medium term as it transitions to a growth model based on productivity and competitiveness.

The downgrade to B2, five steps into junk status, includes a negative outlook.

Moody's said its immediate worry about Belarus, a former republic of the Soviet Union, is the financing requirements of its large current-account deficit, which was about 16% of gross domestic product last year. The agency said foreign-exchange reserve levels are short of its estimates.

It said that even though Belarus seems likely to obtain funding from Russia and planned privatizations, a large part of the external financing will be debt, worsening the country's debt levels and by no means curtailing a return of the funding gaps.

The agency said its downgrade also reflects its worry Belarus won't transition smoothly to a growth model relying on productivity and competitiveness rather than external debt. While average income is high compared to other countries in the B-rating bloc, "the country's high levels of income growth owe much to external financial assistance and subsidized oil imports from Russia," Moody's said.

As such borrowings inflated personal income, competitiveness has eroded and domestic demand rather than exports have fueled growth. That, over time, spurred current-account deficits and deterioration in external debt and government debt ratios.

It said it could move the outlook back to stable if Belarus government implements policies that significantly improve external competitiveness, narrow the current account deficit, and reduce reliance on external funding and subsidized energy for growth. But Moody's said the rating could face more downward pressure from continued difficulties in bridging external financing gaps combined with a failure to improve international competitiveness and narrow the current account deficit.

-By Joan E. Solsman, Dow Jones Newswires; 212-416-2291;


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