Belarus may repay external debt, but lose economic independence

In 2014, Belarus was able to cope with servicing her public debt thanks to new loans from Russia. In 2015, Belarus will need to repay USD 4 billion of foreign debt, but she knows where to obtain such an amount. If Belarus continues integration within the Eurasian Union, she will have no problems with servicing her foreign debt, yet she will lose some independence in economic decision-making.

On September 2^nd, the draft Law on the national budget for 2015 was debated in the Parliament.

In 2014, Belarus had to repay USD 2.4 billion of foreign public debt. She also needs USD 0.8 billion to pay debt service fees. As of early September, all due payments were made on time. The Belarusian economy alone is unable to generate enough income to repay the outstanding debt. Belarus has been using her gold and currency reserves, as well as domestic and international loans to make all due payments on time. That said, her main creditor was Russia.

In 2015, Belarus’ international debt will reach USD 4 billion. The draft 2015 budget envisages the following proceeds: USD 1.5 billion from saved duties on petroleum products produced from Russian crude oil, about USD 0.6 billion from exporting Belarusian oil, USD 1 billion from new intergovernmental loans and borrowings on foreign markets. Belarus services her international debt from the national budget. Therefore, in order to increase her tax proceeds, Belarus might introduce a special fee for the right to export oil, might increase excise taxes on tobacco and alcohol, and might increase VAT and income tax rates. Overall, the government seems to have enough funds to repay and service the international public debt.

Belarus’ ability to service her international debt has improved since she has engaged in the Eurasian integration. By merely signing the Eurasian Union treaty, Belarus will save circa USD 1.5 billion (Russia’s export duty subsidy). In addition, the bridge loan from VTB bank will be re-registered as a state loan from the Russian government.

But as Belarus receives some support from Russia, she loses traditional tools to protect her domestic market from competitive products made in Russia or elsewhere. Deeper integration will mean that she becomes more dependent on the economic situation in Russia, which is experiencing some problems due to internal and external factors. Russia’s growing influence on Belarus may result in the latter losing her autonomy in decision-making on economic matters, and, eventually, to a de-facto economic takeover by Russia.

Belarus calculates that she will be able to repay and service her growing international debt in 2015 and that her public debt will not influence the overall economic situation. For that, however, she may well pay with her independence in economic decision-making.