Domestic borrowing is inexpensive alternative to foreign loans

Belarus is entering a period of foreign debt repayments. The placement of government currency bonds for legal entities showed a demand for alternative investment tools. Considering domestic loans’ rates, domestic loans seem cheaper than foreign ones.

On November 16^th, 2012 Finance Minister Harkovets announced potential placement of government currency bonds for individuals by the year-end.

The situation in the domestic currency market in the last month was characterized by the aggregate net demand for foreign currency. The population, from the net currency seller in the first half of the year has turned into currency’s net buyer due to the dynamic incomes growth. In October 2012, the population bought USD 281.4 million net.

The foreign trade situation has changed significantly since August. The foreign trade balance in goods slid to negative values. The restored trade in petroleum products could not compensate for the losses from reduced potash fertilizers sales and suspended ‘solvent and lubricant’ schemes. Foreign exchange revenues from foreign trade do not meet the increased domestic currency demand.

In December 2012, Belarus will refinance Russian ruble bonds worth RUB 7 billion. In October, Belarus repaid Belaruskali’s USD 800 million loan at high interest rate. The anticipated placement of currency government bonds in foreign markets under current circumstances would envisage 8-9% per annum interest rate for Belarusian securities.

Finance Ministry had placed government bonds in the domestic market worth USD 218 million. The yield on the bonds was 7.5% per annum. Placement period was 3.5 years. Both bonds issues, USD 100 million each, were bought by Belarusian banks – “BelVEB” and “Belarusbank”. In December, the government plans to place bonds for individuals worth USD 50 million. The average interest rate for new term deposits in foreign currency for individuals in October was 5.3% per annum.

Thus, if technical issues concerning currency bonds production for individuals are solved, the government could attract certain funds from individuals. Yield of 7% per annum against the background of low interest rates in the banking system could attract financial resources for a relatively long period. Moreover, the government thereby could reduce the foreign debt servicing costs, as the rate would be lower compared with rates on a number of current external borrowings.