S&P cuts Belarus credit ratings into deep junk

Standard and Poor's on Tuesday cut the debt ratings of Belarus deep into junk status due to its worsening foreign reserves, in a blow for the ex-Soviet state's authoritarian leader Alexander Lukashenko.

S&P cut the long-term foreign currency ratings on Belarus to 'B' from 'B+' and its long-term local currency ratings to 'B+' from 'BB'.

"The rating actions reflect the country's heightened vulnerability to negative external financing trends because of the deterioration in usable reserves," S&P credit analyst Ana Mates said.

It also gave a long-term negative outlook on the ratings, meaning they could be downgraded again.

According to official data, Belarus foreign reserves -- a key cushion against surprise shocks -- shrank $1.4 billion to $5.5 billion in the first two months of the year alone as the government used the funds to cover a gaping current account deficit.

The downgrade comes at a time when President Lukashenko's is being shunned by the West after an unprecedented crackdown on the opposition after December elections.

Although Belarus has looked to Moscow for financial support since the collapse of the Soviet Union, it had been wooing more foreign investment from Central Europe, in particular Lithuania, Poland and Germany.

Another downgrade could come "if the country's external financing plans are impaired by a material increase in interest rates or by unanticipated impediments to securing external funding," S&P said.

According to S&P, a rating of 'B' means "adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitments."

All ratings of BB or worse mean that the government bonds of the country concerned have "significant speculative characteristics," giving the new Belarus ratings the status of several notches into junk territory.

The agency said the rating "could stabilize at the current level if Belarus were to bolster its net international reserves."

The downgrade is set to amplify concerns over the balance of payments in Belarus, long seen as a weak spot in Lukashenko's tight control over the country.

The current account deficit -- a measure of trade plus capital transfers -- is forecast by the International Monetary Fund to be over 14.1 percent of Gross Domestic Product in 2011, although the IMF also sees solid growth of almost seven percent as Belarus emerges from the global economic crisis.

"Without prompt adjustment measures, the current account deficit will remain too high," the IMF warned after its latest consultation meeting in March.

"The authorities need to make quickly, difficult decisions to restore external sustainability."

The IMF said economic policies in Belarus "have been loosened to the extent of becoming unsustainable," even if they had helped boost growth in the short term.

It said Belarus needed fiscal and monetary tightening, and cuts in lending under government programmes as well as a lower wage bill in the public sector to stabilise its finances.


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