Why Belarus is increasing its debts to Russia

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Зачем Белоруссия увеличивает свои долги перед Россией

Deputy Finance Minister of Belarus Yuri Seliverstov said recently that Belarus counts on receiving another tranche of the Eurasian Fund for stabilization and development (EFSD) in the amount of $200 million this spring.

“We think it will be soon. We think that in the spring we will receive it,” said Seliverstov.

He has previously stated that the financial assistance will be provided in January or February or in the first quarter of 2018.

Seliverstov explained the delay in getting this tranche of technical problems on the Russian side. “Now the process has begun. All the conditions agreed upon with no questions there,” — said the Belarusian official. He also reported that there is a discussion of the conditions for obtaining the following, the seventh tranche of the EDB loan is also $200 million

On the credit needle Russia

The agreement on granting Belarus a loan from the Fund was signed on 25 March 2016. The amount of aid – $2 billion, the interest rate on the loan was fixed at the level of 4.06% per annum. The Fund is administered by the Eurasian development Bank (EDB). And the Fund and the Bank established by the member countries of the Eurasian economic Union. A major donor to the EFSR is Russia.

The purpose of the loan — supported program of reforms, aimed at creation of conditions for release of Belarus on a sustainable growth path through the improvement of economic policies and structural reforms.

This is the second credit program with EFSD. Earlier, Belarus received funding from the Foundation, which was called the anti-Crisis Fund of the EurAsEC stabilization program 2011-2013 $3 billion in six tranches. But the sixth tranche of $440 million, which was supposed to be listed in 2013, Belarus has not received because of the failure of a number of conditions.

Loans the Eurasian partnership is not the only channel of financial support for Minsk from Moscow. In August last year, the Russian government approved the allocation of Belarus of a loan of $700 million.

It is designed to repay the national debt of Belarus to Russia, as well as credits received in the Eurasian Fund for stabilization and development. The repayment period is 10 years starting from 15 April 2018.

“It is humiliating for the people”

According to the official statement, the external debt is reduced (by almost $1 billion last year), indoor growing. In addition to the EFSR and the government of Russia in Belarus the number of creditors the European Bank for reconstruction and development, IMF, China’s banks, European Commission.

In 2009-2010, Belarus received from the IMF and $3.5 billion In 2015, Minsk asked for a new loan in the amount of $3 billion for 10 years at a rate of 2.28% per annum. However, the negotiations with the IMF on a new credit line was suspended.

“Today negotiations with IMF on the program of several preserved because our colleagues did not agree (views) in the speed of carrying out the reforms that they proposed to us,” explained Seliverstov. However, he believes that the cooperation with the IMF continues, “in a smooth, working order”.

The IMF, apparently, a different view. In December last year, the Fund published the results of the audit of the economy of Belarus. According to the forecast, GDP growth will remain at current levels — approximately 2% in the coming years. But, according to the IMF, to achieve “a higher and sustainable growth” Minsk needs to carry out more ambitious reforms.

Selected by the authorities, the conservative pace of reforms increases the risks for the Belarusian economy and the threat of a return to “the state’s participation in the distribution of resources”, said in conclusion the IMF.

The Foundation recommends that the government reform the management of public enterprises, to make the public sector more transparent and flexible, to limit support of inefficient state-owned companies and eventually prepare the public sector for partial privatization.

The second recommendation is not less painful for Minsk — to raise utility tariffs. In fact, these recommendations sound. Not only from the IMF. Similar demands are made by the world Bank and the European Commission.

Belarusian authorities acknowledge the need for reform. But to solve the methods offered by international institutions, they are not yet ready. President Alexander Lukashenko sees the solution to problems in the economy so it is necessary to improve the productivity of enterprises and to improve corporate governance. About to close unprofitable plants out of the question.

To abandon property, “if it functions normally,” Lukashenko also not ready.

Even tougher Lukashenko responded to the offer to raise tariffs for the population. “This is humiliating not only for me, it is humiliating for our people,” — said the President.

Increase of tariffs for housing and communal services will lead, in the opinion of the President, to a sharp rise in household debt. In the end, you still have to pay the state.

Belarus is a special case

The external debt of Belarus, according to the Finance Ministry, as of 1 February 2018 totaled $15.8 billion, internal — 9.3 billion rubles. While economists believe these figures are not critical.

“The ratio of government debt to GDP in Belarus is not so much critical as those same Europeans, when in some countries this figure reaches 80%, the US around 100%, in Belarus — less than half”, — said the chief economist of the Eurasian development Bank Yaroslav Lissovolik.

In addition, the Belarusian economy has prospects for further growth, the growth path of debt is reduced, the state budget surplus.

On the one hand, the economic situation in Belarus, indeed, have stabilized, experts say the development Center of the Higher school of Economics. Inflation slowed to historic lows on the foreign exchange market is the net supply of foreign currency by population and GDP resumed growth. Risks of external debt declined substantially after Belarus twice raised funds via Eurobonds totaling $2 billion.

In 2017, the GDP of Belarus increased by 2.4%, almost offsetting the fall in the previous year. Inflation was 4.6% year-on-year in December, which was the lowest figure for the last 20 years. Industrial production output increased by 9.7 per cent year-on-year, similar rapidly growing and retail trade (9.5 per cent yoy), fuelled by wage growth.

This year, the authorities expect economic growth of 3.5% of GDP. The recovery and resolution of oil and gas dispute with Russia could allow the Agency to increase long-term rating of Belarus to B-that is, to a higher level, for example, neighboring Ukraine.

But the debts make themselves known. “Yet many indicators suggest that not all is quiet in the balance of payments,” — noted the experts of the Center for development Economics. And indicate somewhat different from the data of the Ministry of Finance the volume of foreign debt.

“So, last year the external debt of Belarus has increased by a quarter to $16.7 billion dollars, 2.3 times higher reserves” — calculated by experts of the Center of development.

But it is not necessary to measure all the money. Belarus even among the partners of Russia is a special case, says Elena Ponomareva, Professor of comparative politics at MGIMO. “Belarus is our most loyal neighbor. How much you need or have to give money, strengthening our allied relations with Belarus”, — says Ponomarev.

Another thing that the friendship of the two States may not be the same as the friendship of two people. The interests of States, even the closest ideologically, can vary significantly.

“Russia would more tolerant to the diversity of the policy pursued by Lukashenko, asking for help to China, to Europe, establishing contacts with Ukraine. But their interests should not be forgotten. Since we provide financial assistance, it is necessary to strategically negotiate the implementation of our requirements,” says Ponomarev.

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