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S&P revises outlook on Belarus to stable

Standard & Poor's Ratings Services revised to stable from positive the outlook on its foreign and local currency sovereign credit ratings on Belarus. At the same time, the international credit ratings agency affirmed its long-and short-term foreign and local currency sovereign credit ratings on Belarus at 'B-/B'.

The agency put the downgrade of the outlook down to the vulnerability of the country's external financing to a widening current account deficit and rising exchange rate pressures, which "render its external position highly fragile."

"The ratings on Belarus are constrained by political risks, high government financing needs, and reliance on external funding. The government's stalled efforts to introduce much-needed structural reforms to improve competitiveness and growth prospects are also a key ratings weakness," said the S&P in its October 18 statement.

The agency said that Belarus' economic growth continued to be "sluggish" and growth potential appeared to be eroding in view of the economy's weak competitiveness.

"The boost to consumption and investment - which the government largely orchestrated - was not sufficient to offset the negative contribution from net exports and the contraction in industrial production," it said.

S&P pointed to heightened external financing pressures, noting that Belarus registered a current account deficit of about eight percent of GDP in the first half of this year. The agency warned that Belarus would have to pay large amounts to foreign creditors between 2013 and 2015, with obligations due in 2013-2014 totaling eight percent of GDP, over half of which is owed to the International Monetary Fund.

"The stable outlook balances Belarus' political risks, high external indebtedness, and weakening external liquidity against its relatively high per capita GDP for the ratings level and durable capital base," said the S&P. The agency warned that it could lower the ratings if renewed expansionary policies led to the return of exchange rate and inflationary pressures, or if external liquidity or the availability of external funding significantly declined. "Deterioration in Belarus' relationship with Russia would also likely pose downside risks to the ratings," it added.

"Government policy leading to a sustained improvement in competitiveness, a diversification of funding sources, and increased availability of foreign exchange could eventually support an upgrade. We could also consider raising the ratings if we saw an improvement in external balances indicated by lower external financing needs, lower external debt, and improved current account balances," said the S&P. //BelaPAN