Declining hard currency revenues threaten national currency stability

Currency market’s stability has been ensured recently by legal entities’ net currency sales on the foreign exchange. Suspension of some gray sales, as well as significant amounts due for external and domestic debts imply that the National Bank will have to dip into the gold reserves and to look for funds to pay off the debts.

During the first five months of 2012 the currency market situation in Belarus was characterized by excess foreign currency supply, which allowed the National Bank, regardless of the external and internal commitments, to replenish the gold reserves. Since June the population was only buying foreign currency and bought USD 19.6 million net during two summer months (In January-May 2012 the population sold USD 869.8 million net).

In June, gray solvents and lubricants exports started to reduce. In August Russia suspended railway supplies of naphtha to Belarus, hindering gray solvent exports to foreign markets. Monthly proceeds from these solvent export schemes were around USD 150-180 million.

Biodiesel fuel deliveries to Ukraine have been suspended and the matter is being looked into. TNK-BP, which is interested in creating an artificial fuel shortage in exchange for a number of preferences, has most likely initiated such hostile actions in the Ukrainian oil products market. Losses are estimated as high as USD 25-30 million per month.

Belaruskali consolidates cash flows for the early repayment of the USD 1 billion loan – by September 20, 2012. Non-official sources say, the exchange of potash fertilizers supply volumes to foreign markets with Uralkali in Q2 2012, will result in a significant supply reduction, and as a result, in the Belaruskali foreign currency proceeds in Q3 2012.

The loan will also be repaid via currency bonds redemption worth USD 800 million. The Government, most likely, will consider loan’s refinancing.

In the autumn people’s incomes will continue growing which will result in the increased foreign currency demand by the population. Simultaneously, increasing currency risks will not improve the ruble deposits inflow and foreign currency will be used to safeguard savings.

In the given circumstances, the National Bank will have to find ways to refinance foreign debt and to dip into reserves to meet the foreign currency demand by private and legal persons. If foreign loans refinancing is refused, the reserves may fall below USD 6.5 billion.