Page 33 - BELRptSept18

Near-term financing risks remain manageable. After repaying an USD800 million Eurobond in January, the remaining 2018 USD1.6 billion debt maturities will be covered by the proceeds of the February USD600 million Eurobond issuance, local market debt roll-overs, foreign currency revenues (custom duties and oil proceeds) and multilateral financing. The government's strong cash position (USD5.01 billion) can provide short-term financing flexibility, but this cannot be fully used without a sharp drop in international reserves
Foreign currency debt amortisation and interest payments will remain high, averaging USD3.4 billion in 2019-2020. Sustained reduction in refinancing risks will depend on continued progress on diversifying external sources of financing, refinancing opportunities of bilateral debt (Russia) and the pace of local market development. The government is working towards accessing the rouble and Chinese yuan market in the near term. Fitch does not factor an IMF programme into its forecasts.
Gross international reserves equalled USD6.9 billion at the end of May, up by USD300 million since mid-2017. Fitch expects them to remain close to this level in 2018 and average USD6.7 billion in 2019-2020. Hence, external liquidity is likely to remain among the weakest in the 'B' rating category. However, net reserves continue to improve, reaching USD2.8 billion in June 2018. This reflects not only gross reserves' growth but also a reduction in National Bank short-term liabilities, including foreign currency loans.
Current accounts deficits will remain contained. Fitch expect the current account deficit to increase to 2.6% of GDP in 2018 and 3.5% in 2019, broadly in line with the current forecast 'B' median, reflecting increased imports related to the completion of the nuclear power plant (NPP) project. Higher trade deficits have been partly balanced by a rising services surplus, which in turn reflect rising computer services exports that reached USD1.2 billion in 2017 and increased 33% yoy in 1Q18. Net debt external, at 46% of GDP, and external debt service, 16% of current external payments (CXR), remain significantly above rating peers levels.
The officially reported consolidated government accounts reflected a 2017 surplus of 3% of GDP. However, adjustments in terms of expenditure related to the NPP (2.2% of GDP), execution of guarantees and bank recapitalisation/problem loan resolution costs result in an adjusted GG deficit of 0.2% of GDP. Fitch expects the adjusted GG deficit to increase to 2.6% of GDP and 3.5% in 2018 and 2019, respectively, reflecting a lower officially-reported general government surpluses (1.6% and 1.4% of GDP), higher NPP expenditure (2.8% and 3.3% of GDP), and materialisation of guarantees and in Fitch's view, potential costs related to the bank sector clean-up.
Fitch estimates that government debt (including guarantees of 9.5% of GDP) reached 52.5% of GDP at end-2017. Belarus's debt is highly exposed to currency volatility (90% is foreign currency-denominated). Fitch includes government guarantees in its total debt calculations, due to the high likelihood that the government will need to meet state-owned enterprises' repayment obligations. Weaker macroeconomic performance and exchange volatility could create fiscal risks for public finances due to the large presence of SOEs in the economy. The large presence of the public sector (65% of assets) in the financial sector creates fiscal risks for the sovereign, due to the potential need of further capital injections, execution of guarantees and issuance of securities in exchange for loan transfers.
Pressures on the financial sector have eased, reflecting improvements in the macroeconomic conditions, improved capitalisation levels and stabilisation of asset quality. NPLs (the three riskiest categories) have stabilised around 13% since 2H17. In Fitch's view, asset quality could be weaker when assessed in
33 BELARUS Country Report September 2018 www.intellinews.com