Two months after raising USD 1.25 billion in an over-subscribed Eurobond sale offering yields above 5% in the global low interest rate environment, Belarusian bonds, reserves, and the ruble are tanking on the continued political crisis as President Lukashenka continues to cling to power amid widespread protests over election rigging. The currency is down 10% against the USD and EUR since the first week August election and has lost about 30% of its value against both the past year.  The central bank’s reserves are stretched to defend the currency, meet external debt obligations and pay for essential goods. They stand at just over USD 4 billion, equivalent to five weeks of import coverage, according to the Washington-based Institute of International Finance (IIF), less than the standard 3 months seen as adequate to avoid a currency crisis.

The highly dollarized banking system is being depleted as citizens rush to cash in their rubles for hard currency and corporates scramble to service external debt. More than 50% of corporate loans are denominated in FX, many taken by firms that only earn revenue in local currency. Fitch Ratings notes that 65% of banking sector deposits and 52% of loans are in FX. Reports indicate banks are limiting FX withdrawals due to lack of cash, and that some are imposing a surcharge. despite the central bank offering standard liquidity facilities.

While the Finance Ministry puts total external public debt at only USD 18 billion, just under 30% of GDP, the state has more than USD 1 billion in overseas payments due by year-end and USD 1.9 billion next year.  Of the total about 45% of it is due to Russia, according to Fitch.  When it launched its June USD 1.25 billion Eurobonds, half of its external debt was owed to Russia, and last week Lukashenka announced that his Russian counterpart had agreed to refinance a USD 1 billion loan.  Despite reports of Kremlin positioning to interfere politically during Belarus’s turmoil, relations between the two have frayed in recent years and Russia has raised prices on previously subsidized oil and gas. The higher costs and pandemic-induced slowdown in global trade are pressuring the fiscal and current account deficits which Fitch estimated would widen to -4.3% of GDP and -3.1% of GDP, respectively, before the election.

The combination of previous economic setbacks and unrelenting protests are expected to result in GDP contraction in the range of 5% or more this year.  Ongoing strikes at the large state-run factories will reduce exports, particularly at Belaruskali the world’s largest producer of potash.  Employees at the Hi-Tech Park, a tech and innovation hub which has become one of the largest IT outsourcing providers for Europe, are said to be leaving.  After years of mounting performance and structural tolls in the state-dominated system that a failed IMF program could not resolve, Belarus’s election-induced chaos is spreading rapidly with the currency and banking sector in line for policy and literal collateral damage while the Lukashenka regime does not budge.

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