“Hard times to come”: Russia’s emergency loan to Belarus changes little for struggling Lukashenko
Russia’s emergency $ 1.5 billion loan will do little to help Belarusian President Alexander Lukashenko prevent his economy from slipping into crisis, analysts say.
Instead, the deal highlights Minsk’s heavy reliance on financial and political support from Moscow, with Belarus to use the funds – agreed between Lukashenko and Russian President Vladimir Putin at a very publicized in Sochi earlier this week – largely to refinance debt it already owed Russia.
Belarus has a public debt of around $ 1.2 billion that is due to be renewed before the end of this year, Kateryna Bornukova, economist and academic director of the Belarusian Research and Awareness Center (BEROC), told The Moscow Times.
“We don’t have detailed data, but I guess the majority will go to Russia. And then Belarus must also repay a loan of 325 million dollars to Gazprom, ”she added. “This is exactly the $ 1.5 billion Belarus is supposed to get. So we are going to get this money back and pay it back to Russia.
No new money
Many suspect that the deal plays more of a political role than an economic one.
“The ad is just one example of good marketing. This $ 1.5 billion is not new money, it is mainly the refinancing of already existing debt, ”said Sofya Donets, economist at Renaissance Capital. “It was very important to show that Russia is there, Russia is in favor, Russia is ready to refinance,” she added.
The biggest challenge for Lukashenko will be to ensure the financial health of Minsk over the next few years. Experts say Belarus Needs around $ 3 billion to $ 4 billion a year to be able to continue to repay or refinance its public debt, 95% of which is denominated in foreign currencies, according to the Credit Analytical Rating Agency (ACRA).
Lukashenko’s harsh repression after August contested elections will only increase reliance on Russia to help cover those bills by excluding Minsk from international markets, experts say.
“There will be punishments from West. There is absolutely no doubt, ”Daniel Krutzinna, adviser to former Belarusian Prime Minister Sergei Rumas, told the Moscow Times.
“With the sanctions from the West, you basically have the market open only to investors from Russia or China, who are not well known for being altruistic – they will put very strict conditions on their engagement in Belarus.”
At the mercy of Russia
Almost $ 8 billion, or 47%, of Belarusian public debt outstanding is owed to Moscow in the form of bilateral loans, according to calculations by the Institute of International Finance, and an additional $ 2.2 billion is owed to Moscow in the form of bilateral loans. owed to the Eurasian Stabilization and Development Fund, a small international organization. of five post-Soviet states where Russia is the primary decision-maker.
Together, that means Moscow controls over 60% of Minsk’s public debt, and another 20% is owed to China.
Bornukova doubts Beijing is a viable option for Lukashenko in the current climate.
“China generally likes to give conditional loans that have to be spent on Chinese projects, buying Chinese equipment, or hiring Chinese companies to build factories. It has not worked well for Belarus in the past, and there are no good projects that China could support at the moment, ”she said.
“In addition, China likes stability. And that’s not a word we can use to describe Belarus at this time. So basically, in terms of public debt financing, we are at the mercy of Russia. “
Belarus likely did not need Russian funding to cover this year’s bonds, ACRA said in a recent report, as the prospect of default was unlikely.
“But in the future, the likelihood of non-payment of state debt could increase dramatically,” the organization warned, citing a surge in interest rates and outstanding bonds from state-owned companies and banks. the country, which as of July 1 had about $ 9 billion in external debt due by year-end. The fact that most of Belarus’ foreign corporate debt obligations are also owed to Russia reduces the risk of default, an Oxford Economics report recently said, but further increases Moscow’s political influence.
Lukashenko would need even more external support if he is to face the wider economic crisis.
“If we are talking about maintaining the level of Belarusian well-being that they had a year ago, we would probably need a lot of money – $ 5-10 billion a year,” Bornukova said.
This would mean the continuation of significant financial support from Russia, which Andrey Suzdaltsev, professor at the Moscow Higher School of Economics, estimates had totaled over $ 130 billion in the past 15 years.
Putin had already been try to revise the configuration by which Moscow supplies cheap oil to Minsk which it refines and then sells to Europe. There are widespread expectations that Moscow will now impose even stricter conditions or demands for political integration in return for possibly reduced financial support.
“If Lukashenko stays, he will have to face the fact that Russia will no longer support the Belarusian model of socialism financed by profits from refining Russian oil purchased at subsidized prices,” Krutzinna said.
Weeks of protests and a harsh crackdown on Lukashenko’s opposition put great pressure on Belarus’ economy, which was already collapsing amid declining demand for energy.
“The situation is bad enough already. We expect the economy to contract 3.6% this year, which is near the deepest contraction in a decade, ”Donets said.
The Belarusian ruble has lost more than 25% in the past year, of which about half in the past month. Renaissance Capital expects to lose another 6-7% by the end of the year.
In August alone, the country also burnt thanks to about $ 1.4 billion in international reserves as the Central Bank stepped in to support the currency while Belarusian citizens and businesses began to convert their rubles into dollars. The dip accounted for 16% of Belarus’ currency and gold reserves, and almost matches the scale of Russian emergency funding.
However, analysts say there are few signs that Lukashenko is thinking about the country’s economy as he tries to maintain power.
“Economic development is not on the agenda. It’s all about security, ”Bornukova said.
“Even when Lukasheko recently discussed economic issues, it was in meetings with his Security Council, which is full of heads of law enforcement agencies. The Ministry of Finance, the Ministry of the Economy and the Central Bank were not present.
Analysts almost unanimously cite Lukashenko’s IT sector management throughout the crisis, previously viewed as a rare achievement of growth and innovation in an otherwise heavily state-controlled economy, as an indicator of the kind of business model he might impose if he remained in office – increased state control leading to increased uncertainty and less foreign investment.
“Economically, Belarus has very difficult times ahead,” warned Krutzinna.