They Won't Be Able to Burn Gold Reserves for Long

What awaits Lukashenka's economy?

In August 2020 alone, the country's gold and foreign exchange reserves decreased by $ 1.4 billion, or about 16%, almost reaching the border, tired by the authorities at the end of the year, Belsat reports.

On September 14 in Sochi, Aliaksandr Lukashenka agreed with Vladimir Putin on the allocation of a historic loan to Belarus in the amount of $ 1.5 billion. But how much will those funds last, and will they help maintain the country's economic situation? We asked economists about this.

Not one loan, but three

Russian Finance Minister Anton Siluanov said that Russia plans to provide Belarus with a $ 500 million loan this year and another similar loan in 2021. In addition, Russia is initiating the allocation of a $ 500 million foreign currency loan to Belarus through the Eurasian Fund for Stabilization and Development (EFSD) this year.

Thus, by the end of 2020, Belarus will receive only $ 1 billion, and another $ 500 million in the coming year, RBC reports.

According to the minister, the loan from the EFSD will be nominated in dollars, and the funds from Russia will come in rubles.

The minister did not name the exact term of loans for Belarus, but, "earlier, the length of loans averaged ten years, and Russia will be guided by these terms."

At the same time, a condition is set for Belarus: not to allow delinquencies on bilateral debts, as well as on obligations to Russian companies with state participation. Siluanov did not report any concessions from Minsk.

Meanwhile, Aliaksandr Lukashenka said on September 16 that the Russian loan for $ 1.5 billion will partially go to refinance Belarus's debt.

"I must tell you that it was my demand. Both the prime minister and the finance minister offered me to repay this loan - this year, we had to return a billion to them on our old debt," he said.

The loan is gone

Analyst of the research group BusinessForecast.by Aliaksandr Mukha said that, taking into account such a large-scale outflow of foreign currency deposits from the banking sector in August and September and the rather tight schedule of payments for the foreign currency debt of Belarus, Russian loans are not that much money, and they can end quickly enough.

Belarus must pay almost $ 20 billion

According to the Ministry of Finance of Belarus, the schedule of payments on the state debt of Belarus as of March 31, 2020 is as follows:

2020 - $ 3.421 billion;

2021 - $ 3.235 billion;

2022 - $ 3.565 billion;

2023 - $ 3.843 billion;

2024 - $ 3.061 billion;

2025 - $ 2.645 billion

That is, by the end of 2025, Belarus must pay $ 19.77 billion.

As AliaksandrMukha noted, Belarus's access to international financial markets and loans from international financial organizations has become noticeably more complicated in the current situation. There is a risk that Russia may become a single external creditor to Belarus, which may significantly increase credit dependence on the Russian Federation and the Eurasian Fund for Stabilization and Development, which it controls. Minsk already owes them more than $ 10 billion. And this does not include the new loan.

There are very few reserves

Aliaksandr Mukha noted that, first of all, the most liquid part of the gold and foreign exchange reserves - reserves in foreign currency - is decreasing. They decreased by September 1 to $ 3.21 billion. The expert recalled that as of December 1, 2014, when another currency crisis hit Belarus, reserve assets in foreign currency amounted to $ 3.712 billion in foreign currency. Therefore, the ratio of foreign exchange reserves to foreign exchange government debt has worsened.

"This all indicates that the current level of foreign currency assets is extremely low and insufficient," the economist said.

In his opinion, Russian loans will support the gold and foreign exchange reserves and give a certain respite only on the condition that they arrive in the near future, and consultations between the finance ministries of Belarus and Russia will not drag out.

A quarter of Belarusian enterprises are bankrupt

Aliaksandr Mukha recalled that not only the debts of the state but also of state organizations and banks, which also have a certain deficit of foreign exchange liquidity, have grown quite strongly. Therefore, he believes the state will be forced to provide some support to them.

Almost three rubles per dollar

Experts are also expecting a further fall in the Belarusian ruble. Aliaksandr Mukha noted that, in August, the authorities supported the exchange rate by "burning" foreign exchange reserves, but "this process is also not endless." Now, in his opinion, gold and foreign exchange reserves will be more intended for repayment and servicing of the state's foreign exchange obligations.

"If we continue to burn significant volumes of gold reserves to maintain the exchange rate, then the government of Belarus may face certain difficulties in fulfilling its currency obligations," he said.

At the same time, in his opinion, the authorities will have to choose between two troubles. After all, if the National Bank reduces interference in the currency exchange, it can accelerate the devaluation of the exchange rate of the Belarusian ruble, and if it stops, the devaluation of the ruble could be at least 10% relative to the current indicators - about Br 2.85 per $ 1.

"Obviously, this could lead to higher prices for imports, higher inflation, and higher devaluation expectations, provoking demand for foreign currency, which supports itself," the expert emphasized.

Also, in his opinion, much will depend on how strongly the National Bank will restrict the provision of ruble liquidity to banks. If he does it extremely harshly, it can already hit the banks. Now, Aliaksandr Mukha noted, the banking sector remains in short supply of ruble liquidity, which may prevent them from fulfilling their obligations to their depositors.

The economy depends on politics

Aliaksandr Mukha stressed that the root cause of the problems in the foreign exchange market and in the banking market still remains unresolved.

"And the root cause is an acute political crisis and serious political uncertainty in the country, which arose against this background. This year, one can expect such negative trends as the outflow of funds from the banking sector, the conversion of ruble deposits into foreign currency deposits, and the deterioration of the term structure of deposits - the attachment to non-withdrawable deposits will greatly decrease," the expert noted.

In his opinion, the aggravation of the crisis in the political sphere may even more negatively affect the banking system.