Belarus counts on new loans to close international deficit

The National Bank of Belarus on December 12, 2011 increased the refinancing rate from 40% to 45%. By gradually rising interest rates the authorities fulfill the requirements of the ACF of the EurAsEC. Raised rates will significantly reduce business activity in the country and strengthen recessionary expectations.

The EurAsEC Anti-Crisis Fund will make the second transfer of $ 440 million to Belarus in December.

The National Bank forecasts that the volume of international reserves by the end of 2012 will amount to $ 7 billion. The main sources of foreign currency proceeds are projected from foreign direct investment ($ 3.7 billionfrom privatization), and from foreign borrowing by banks ($ 1.7 billion).

It is extremely important for the Belarusian authorities to receive all tranches of the USD 3 billion loan of the EurAsEC in 2011-2013 (USD 1.24 billion in 2011).

To this end the authorities are going to fulfill the requirements of the ACF and gradually raise the interest rates. On December 12, 2011 the National Bank of Belarus raised the refinance rate by 5 %, from 40% to 45%. At the same time interest rates for bank liquidity support operations were raised from 65% to 70% per annum.

Higher interest rates are still far from positive values as the annual inflation exceeded 100%. However this increase was enough to receive the following transfer of the EurAsEC Anti-Crisis Fund.

In the meanwhile increased rate becomes an additional factor that “cuts down” domestic demand from businesses and residents. Therefore 5% of the GDP growth will require significant emission injections, which will stir upinflation and will cause a new wave of devaluation expectations. The only way to achieve 5% of the GDP growth not via emission and in compliance with the EurAsEC and CES requirements is to increase exports by at least 10%, which is particularly challenging, given the low competitiveness of Belarusian enterprises.