The government of the Republic of Belarus (hereinafter, Belarus, or the country) has been assigned the following ratings under the international scale:
- Long-term foreign currency credit rating at B+ and local currency credit rating at B+;
- Short-term foreign currency credit rating at B and local currency credit rating at B.
The outlook on the long-term foreign currency credit rating is Stable and local currency credit rating is Stable.
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18–month horizon.
Credit rating rationale
Belarus’s B+ credit rating is supported by relatively high economic welfare, moderate public debt, stabilized inflation, positive changes in the structure of the economy due to private sector development, as well as high quality human capital. The rating is constrained by the country’s weak external position, highly dollarized economy, and low potential for economic growth.
Belarus ranks third among CIS countries in terms of economic welfare. In 2018, the country’s per capita GDP by purchasing power parity (PPP) amounted to 19,995 international dollars. In general, the country’s population enjoys the same economic welfare. Belarus’s Gini coefficient, as calculated by the World Bank, is one of the lowest among all countries for which the World Bank calculates this index. The economic welfare that the country has achieved, as well as its relative uniformity across the country, indicates the sufficient tax potential of the economy.
ACRA notes positive structural changes in the country’s economy, in particular, the rapid development of industries like IT, tourism, etc. In 2019, almost half of the country’s real GDP growth came from the information and communication sector, which includes IT (0.5 p.p. out of 1.2% y-o-y). It is worth noting that the success of some of these sectors is facilitated by special measures of support taken by the government such as preferential tax legislation, building technology parks with special legal statuses, etc. These trends make the country’s economy more resilient to external shocks and may increase its potential in the future.
A positive factor in the rating assessment is stabilized inflation, which in December 2019 amounted to 4.7% y-o-y. This was due to the government and the National Bank of the Republic of Belarus (the NBRB) implementing a balanced macroeconomic, fiscal, and monetary policy aimed at ensuring macroeconomic, price, and financial stability. The stability of the national currency exchange rate as one of the results of this policy amid low inflation in Russia also contributed to the low rate of price growth in Belarus.
According to ACRA, the country’s economy is close to its potential, which is now 1.5-2% y-o-y. Some structural factors limit the potential for economic growth, namely the relatively high share of the public sector in the economy, the projected decline in the labor force (partially offset by high education levels), and dependence on external energy sources. The government has taken a number of measures aimed at removing these structural restrictions (e.g., tightening soft budget constraints for state-owned companies and improving the business climate).
The relatively high degree of economic openness and dependence on the Russian economy, which accounts for about half of Belarus’s foreign trade, may limit GDP growth in the short and medium terms. According to ACRA, the country’s economic growth will be about 1% y-o-y in 2020, which is below its potential. ACRA notes limiting factors such as moderate economic growth in Russia, which is expected to reach 0.8-1.5% y-o-y in 2020, as well as a tax maneuver in the Russian oil industry that assumes a gradual reduction of export duties on oil by 2024 and an increase in taxes on mining. In ACRA’s opinion, the tax maneuver will negatively affect the profitability of the country’s oil refineries due to higher prices for imported Russian oil and will limit the possibility for fiscal stimulation of the economy due to a reduction in budget revenues from export duties.
ACRA assesses the country’s public debt as moderate. According to ACRA, public debt equaled 33.7% of GDP at the end of 2019, while general government debt (including that of local authorities, self-government bodies, and guarantees of all budget levels) amounted to 40-42% of GDP. In 2018, the country executed its general government budget with a surplus of 3.8% of GDP. A surplus is also expected for 2019. However, the country’s Ministry of Finance expects the general budget surplus to fall into a deficit of about 1% of GDP in 2020, partly due to some revenue loss after the tax maneuver in Russia. This may lead to some increase in public debt, but significant volumes of cash accumulated by the government could partially cover the expected deficit.
The country’s public debt consists mainly of intergovernmental loans and loans from international organizations, which explains the relatively low interest payments on it. At the beginning of 2019, more than 90% of public debt was denominated in foreign currency, making it vulnerable to fluctuations in the national currency exchange rate. Lower budget revenues, in part due to lower revenues from export duties on oil, could lead to a slight increase in public debt by the end of 2020.
There are risks of contingent liabilities materializing related to companies and banks. ACRA assesses the state of the country’s banking sector as generally stable, but the high level of dollarization increases the risks associated with exchange rate fluctuations. The government and the NBRB have taken measures to de-dollarize the economy. For example, the NBRB has increased reserve standards for funds raised in foreign currency and reduced the number of cases in which foreign currency is used in settlements between residents. Given the stable inflation and the exchange rate of the Belarusian ruble, these measures should reduce dollarization as well as increase confidence in the national currency and the amount of savings in it.
In the short and medium terms, this process may be complicated by the expected deterioration of the current account balance (a result of reduced secondary income after the tax maneuver in Russia).
The relatively weak assessment of the country’s external position is based on a high share of external debt and its incomplete coverage by international reserves. As of October 1, 2019, external debt equaled 61% of GDP and its structure was dominated by public debt and that of companies/banks with state participation. However, short-term debt accounts for only a third of the total. Reserve assets, taking into account cash in foreign currency accumulated by the government, partially (by 53%) covered all upcoming payments on external obligations on this date. This increases borrower dependence on debt refinancing in foreign currency.
The country’s World Governance Indicators, as calculated by the World Bank, generally correspond with CIS countries and countries with similar indicative credit ratings. The country’s Control of corruption indicator has improved over the past ten years and currently is one of the highest among CIS countries. The Regulatory quality indicator has also increased, which also highlights the positive effects of public policy aimed at stimulating and developing the private sector.
The high quality of the country’s human capital is based on high life expectancy and education levels. The UN-calculated index of education quality puts Belarus significantly higher than comparable countries. According to the UN, public spending on education amounted to 4.8% of GDP in 2017, exceeding the world average of 4.1%.
Sovereign model application results
Belarus has been assigned a BB- Indicative credit rating in accordance with the core part of ACRA’s sovereign model. One of the modifiers in the modifiers part of the model allows the Indicative credit rating to be increased. This includes the following, which is determined by the Methodology for Credit Rating Assignment to Sovereign Entities under the International Scale:
- Effective structural, economic, and monetary policies.
Negative modifiers are the following:
- Potential for economic growth;
- Contingent liabilities and the risk of them materializing;
- Fiscal policy and budget flexibility;
- Market access and sources of funding;
- Vulnerability in balance of payments;
- External debt sustainability.
ACRA has lowered the country’s Indicative credit rating by one notch based on the abovementioned modifiers. ACRA has assigned a Final credit rating of B+. There are no extraordinary factors that could adjust the Final credit rating. As such, the Final credit rating remains at B+.
Potential rating upgrade factors
- Improved public debt structure including reduced currency risks;
- Strengthened external position via accumulated foreign currency reserves;
- Reduced risk of contingent liabilities via effective structural reforms in the public sector;
- Accelerated economic growth while maintaining macroeconomic stability.
Potential rating downgrade factors
- Increased public debt while maintaining a high share of foreign currency debt;
- Significant increase in short-term public debt;
- Serious external shocks capable of putting pressure on the national currency.
Issue ratings
No outstanding issues have been rated.
Regulatory disclosure
The sovereign credit ratings have been assigned to the Republic of Belarus under the international scale based on the Methodology for Credit Rating Assignment to Sovereign Entities under the International Scale and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
The sovereign credit ratings have been assigned to the Republic of Belarus for the first time. The sovereign credit ratings and their outlook are expected to be revised within 182 days following the publication date of this press release as per the Calendar of planned sovereign credit rating revisions and publications.
The sovereign credit ratings are based on information from publicly available sources, information provided by the Republic of Belarus, as well as ACRA’s own databases. The sovereign credit ratings are unsolicited. The government of the Republic of Belarus participated in the credit rating assignment.
ACRA provided no additional services to the government of the Republic of Belarus. No conflicts of interest were discovered in the course of the sovereign credit rating assignment.
