Belarus Debt Rating Cut at S&P on ‘External Vulnerability’

By Scott Rose - Mar 15, 2011 5:55 PM GMT+0200

Belarus’s debt rating was cut by Standard & Poor’s by one notch to B, five steps below investment grade, from B+ as dwindling reserve holdings increased its “external vulnerability.” The outlook is negative, S&P said.

“The rating actions reflect the country’s heightened vulnerability to negative external financing trends because of the deterioration in usable reserves,” S&P analysts led by Ana Mates in London said in a statement today. Belarus faces “uncertainties” with its “external funding gap in 2011 and the corresponding pressures on the exchange rate.”

The former Soviet republic, wedged between European Union member Poland and Russia, has seen its foreign reserves dwindle to $3.4 billion in December, a decrease of 36 percent from a high of $5.3 billion in April 2010, International Monetary Fund data compiled by Bloomberg show. The IMF agreed to lend Belarus $3.5 billion in 2009 after export revenue tumbled during the global financial crisis.

Belarus sold its debut dollar bonds last year, offering a total of $1 billion, and borrowed $800 million in seven-year debt in January. The yield on 2018 securities today jumped 62 basis points to a record high of 10.643 percent.

The country’s 2012 bonds denominated in Russian rubles fell, pushing the yield 49 basis points higher to 9.94 percent, the highest since the notes were sold in December.

Sufficient Resources

The central bank said today it has sufficient resources to ensure “gradual moves and predictability” of the Belarusian ruble, adding it has no plans for a “sharp” currency devaluation. The regulator devalued the domestic currency by about a fifth in January 2009.

Fitch Ratings cut the debt rating outlook for seven Belarusian banks yesterday after the country’s finances “weakened significantly.”

The Washington-based IMF urged policy makers in Belarus on March 9 to curb spending and boost interest rates to narrow a current account deficit that reached 16 percent of GDP.

The IMF expects the Belarusian economy to expand at a slower pace this year, gaining 6.9 percent compared with an estimated 7.6 percent in 2010, as consumer-price growth surges to an average of 11 percent.

Belarus will probably continue to finance itself this year through foreign direct investments and external borrowing, according to S&P. The nation’s total sovereign debt, including state guarantees, reached 39 percent of gross domestic product at the end of last year and may continue to gain 5 percent to 6 percent of GDP a year, the ratings service estimates.

External Financing Gap

“Beyond 2011, a more flexible exchange rate and tighter fiscal and monetary policies likely will be necessary to narrow the external financing gap and retain external investor confidence,” S&P analysts wrote.

The Eurasian Economic Community, a grouping of post-Soviet nations, will lend $400 million to Belarus from its anti-crisis fund to help overhaul the nation’s road network and may provide another loan to help finance its current-account deficit, Interfax reported today, citing Sergei Shatalov, the fund’s managing director.

To contact the reporter on this story: Scott Rose in London at

To contact the editor responsible for this story: Balazs Penz at


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