Belarus: Near-term sovereign credit risks recede

02 May 2018

Sovereign credit risks have moderated in Belarus, as liquidity pressures ease and the economy emerges from recession. However, a sustained improvement in the economic environment is unlikely without wide-ranging structural reforms. Foreign firms will face challenging operating conditions in Belarus, given elevated expropriation and contract alteration risks.

Security Environment

There are no known terrorist groups operating in Belarus, although authoritarian rule may drive individuals or small cells to damage the government’s image by targeting public spaces in isolated terrorist attacks. There have been three improvised explosive device (IED) attacks since 2005. In the most serious incident in 2011, 15 people were killed when an IED detonated at a metro station in Minsk. Two individuals were executed in relation to the attack, although their motives were not revealed.

As a result, whilst the risk of terrorism is generally low, the risk of property damage, death or injury cannot be ruled out.

Throughout 2017, there was an uptick in the number of protests and rallies in Belarus. In February 2017, an anti-tax protest attracted 5,000 people in Minsk. Protests are largely peaceful, although police may use heavy-handed tactics to disperse protesters, and participation could result in detention.

In March 2018, at least 70 people were detained after participating in a rally. Elevated unemployment, increasing utility costs and tax rises all have the potential to spur further protests. However, the lack of an organised opposition or civil society groups means that grievances are unlikely to be mobilised into a co-ordinated protest movement that could threaten Alexander Lukashenko’s government.

Trading Environment

Sovereign credit risks in Belarus have moderated in recent months. The country’s creditworthiness has been boosted by the build-up of financial reserves throughout 2017. Belarus secured a USD 700 million bilateral loan from Russia in August 2017 and achieved a successful USD 800 million Eurobond issuance in June 2017. As a result, international reserves increased by USD 2.4 billion in 2017, supporting liquidity in the domestic economy. This will enable the government to meet its foreign currency debt obligations in 2018, which stand at an estimated USD 2.6 billion.

However, wider structural reforms are needed if stabilising economic risks are to be sustained in the long-term. Belarus remains exposed to currency risks, given that 90.2% of debt is foreign currency denominated. Whilst the economy emerged from two years of recession in 2017, recording 2.4% GDP growth, growth rates are unlikely to rise significantly in the coming years. This would require wide-ranging structural reforms of the over-sized public sector and business environment, which are not likely to be implemented in the medium-term outlook.

Investment Environment

The operating environment is challenging in Belarus, given a high level of ad-hoc government intervention in business activities. Contract alteration risks are tied to Lukashenko and his policy priorities, which can shift rapidly. Construction projects approved at municipal level will be at particular risk of cancellation or alteration, if they do not also have favour with the central government. Any projects that are viewed unfavourably by the general public are also likely to be cancelled, as the government acts to mitigate protest risks.

Whilst the government is keen to encourage foreign investment to boost its financial position, it continues to view expropriation as a tool to expand its stake in profitable business activities or respond to failures at private companies. For example, in 2012 the government increased its stake in Kommunarka, a confectionary company, from 22% to 57%. However, expropriation risks will be slightly lower for foreign investors than domestic firms. The judiciary is not independent and is likely to favour the government in any cases challenging expropriation.

Belarus Pricing Outlook

†† Pricing is dependent on sector due to wide governmental control in many industries.
††† Pricing would be reflective of counterparties such as Belarusbank at the lower end and Belarusian Oil Company at the higher end.

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Tunisia, Ghana, Belarus and Finland all of which have been the subject of recent enquiries from JLT's client base.

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For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email