Moody's: Belarus' credit profile balances economic diversity, relative wealth against structural external vulnerability

The key credit strengths of Belarus include its diversified and industrialized economy and relatively high per-capita income, said Moody's Investors Service in a new report. However, persistent external vulnerability constrains the government's creditworthiness, evidenced by its low foreign exchange assets and its dependence on external financial support.

The annual update, "Government of Belarus -- Caa1 stable, Annual Credit Analysis", is now available on www.moodys.com. Moody's subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

"Belarus is close to securing sufficient external financing to permit it to refinance or pay its upcoming foreign currency liabilities for the next 18 months," said Kristin Lindow, a Moody's Senior Vice President and co-author of the report. "This includes the $800 million Eurobond falling due in January 2018."

Moody's said Belarus has settled a dispute with Russia over the price at which it imports oil for its refinery, cleared its related payments arrears and is expected to receive up to $1 billion in bilateral loans. Accordingly, Moody's no longer expects Belarus to seek an IMF programme.

In addition, Belarus has just issued a dual-tranche, $1.4 billion Eurobond and will receive the final disbursements from a $2 billion program with the Eurasian Fund for Social Development (EFSD). Still, Belarus' external liquidity position is weak and there are significant contingent liabilities from its large state-owned sector. Most of the government's debt is foreign currency-denominated, even the bonds issued in its domestic market.

Moody's also expects real GDP to contract for a third consecutive year in 2017, although at a much reduced pace thanks to the renewed output and exports of refined oil products and the economic recovery in Russia, which is Belarus' main trading partner.

The stable outlook on Belarus' rating reflects our view that the balance between potential upward and downward pressures on the credit profile is incorporated in the current rating. We would upgrade the rating should the external liquidity position strengthen enough to reduce reliance on continued external support. Such an improvement could stem from continued economic and fiscal reforms that sustainably reduce the government's external and contingent liabilities. Downward pressure could come from a further erosion in official foreign exchange reserves or the government's balance sheet strength.