BELARUS NEWS AND ANALYSIS

DATE:

23/08/2007

Moody's issues first-ever ratings for Belarus based on energy prospects

Moody's Investors Service announced the first sovereign ratings ever assigned to the Republic of Belarus - a Ba2 rating for the foreign currency country ceiling and issuer ratings of B1 for foreign and local currency debt obligations of the government of Belarus.

The ceiling is based on the government bond rating and Moody's assessment of a moderate likelihood of a payments moratorium in response to a government default.

Also assigned was a B2 foreign currency bank deposit ceiling along with a local currency country ceiling and a local currency bank deposit ceiling of Baa3. All ratings carry a stable outlook.

"The ratings reflect both the recent macroeconomic successes of Belarus and the likelihood that rapidly increasing energy prices from 2007 onward will occasion substantial restructuring of enterprises and may lead to a deterioration of some macroeconomic indicators," said Moody's Vice President Jonathan Schiffer. "While the Belarus 'model' for promoting strong economic growth with relatively little social inequality has performed very well over the past five years, the degree to which existing institutions and mechanisms can cope with a qualitatively new economic environment is uncertain."

At the moment, he said, terms of trade gains from cheap Russian energy inputs (that are, in part, processed via energy-intensive production units into Belarusian exports) have allowed substantial gains to be redistributed through budgetary and non-budgetary channels -- economy-wide mandated wage increases, state-directed lending, subsidized energy inputs to state-owned enterprises. A negotiated growth of the price of gas energy inputs from $54 in 2006 to world price levels in 2010 would seem to present a challenge to this approach.

"Belarus has some world-class enterprises that are currently channelling substantial investment into fixed assets to deal with the challenge of higher energy prices through productivity gains," said Schiffer.

"Nevertheless, current account performance might prove vulnerable, and foreign currency revenues -- already low by international standards -- might not grow at the desired rate." He said the government will likely attempt to meet this new economic environment with a series of fiscal measures, including selective privatization and an attempt to wean enterprises off budgetary subsidies and encourage them to borrow on international capital markets. Subsidies to enterprises currently account for 7.4% of general government budgetary expenditure, equivalent to 3.5% of forecasted GDP for 2007.

"It seems quite probable that foreign currency borrowing by both government and state-owned enterprises will grow significantly in the coming period," said Schiffer.

"However, the starting point for this likely growth of public-sector external debt is very low; even worst-case stress scenarios do not result in a very heavy debt service burden in the medium-term."

He said Moody's will monitor closely the degree of resilience and flexibility exhibited by the Belarusian economy and "growth model" and the policy responses of the Belarusian authorities to external shocks that reflect the new economic environment engendered by rising energy prices.

Source:

http://www.financialmirror.com/more_news.php?id=8020&nt=IT%20/%20Telecom