Citizens and businesses’ currency savings as a source of debt refinancing

2013 will mark the beginning of substantial external debt repayment period for Belarus. Interest rates on foreign currency deposits in the domestic market are lower than the foreign loans rates. A new savings strategy could avoid the need for external borrowing.

On October 4^th, 2012 Finance Minister Kharkovets spoke about the possibility to place foreign currency bonds in the domestic market.

In 2013 Belarus will have pay off USD 2.9 billion. It is unlikely that the IMF loan will be refinanced, bearing in mind Belarus’ commitment to high GDP growth, which contradicts the IMF recommendations. In addition, cooperation on a new credit programme is halted by political factors.

Belarus agreed to refinance the Belaruskali loan at 8.5% for a three-year period. This rate is much higher than the rates prevailing in the domestic deposit market. In August the average rate on new short-term deposits in foreign currency for the population was 5.8% per annum and 3.6% for legal persons.

The government has reiterated its desire to raise population’s funds in the country’s economy several times. However, the increase in deductions on funds in foreign currency up to 12% would result in a further rates’ reduction and the currency outflow from the banking system.

Given the circumstances, the state could issue foreign currency bonds in the domestic market. In spring 2012, with 9% annual rate, there was a high demand for banks’ foreign currency bonds. New issues were bought out in short terms.

There are some technical difficulties with issuing bonds for private persons. However, the state could issue foreign currency bonds and simultaneously announce amnesty of capital, which has been planned. The state could consider amnesty of capital, which was invested in state-currency bonds with a lower interest rate than in the foreign loans market. These funds could be put in the turnover in Belarus and the public debt servicing cost could be reduced.

Therefore the Finance Ministry can assist the creation of a new investment instrument, to reduce the debt servicing cost and bring additional resources in the economy.