S&P: Outlook on Belarus to Negative on mounting external pressures

/Standard & Poor's, Frankfurt, November 03, 08/ - Standard & Poor's Ratings Services said today it revised its outlook on the sovereign credit ratings on the Republic of Belarus to negative from stable. At the same time, the 'B+' foreign currency and 'BB' local currency long-term and the 'B' short-term sovereign credit ratings were affirmed. The transfer and convertibility assessment, which measures the probability of the sovereign restricting access to foreign exchange by non-sovereign debtors, remains at 'B+'. In a related action, the outlook on the state-owned Belpromstroibank JSC was revised to negative from stable, and the 'B+/B' long-term and short-term counterparty credit ratings were affirmed. "The outlook revision on Belarus reflects the adverse impact that we expect the deteriorated international economic and financial environment to have on the Belarusian economy," said Standard & Poor's credit analyst Kai Stukenbrock. "A considerable deterioration in Belarus' terms of trade, together with reduced export demand from key trade partners will increase pressure on the current account balance, while restricted access to external funding and low external liquidity provide only a limited buffer." We expect the current account deficit to amount to about $3.6 billion or 7% of GDP in 2008. Nevertheless, a number of negative shocks will lead to a significant widening of the current account deficit in 2009. Deteriorating growth dynamics in the region will lead to weakening export demand, particularly from key CIS trade partners. The country's terms of trade will deteriorate because another round of significant reductions in Russian subsidy for the gas import price will come into effect from the beginning of 2009. While the current account deficit is set to widen significantly, external financing options have been severely reduced by the current international financial environment. Net foreign direct investment, which this year is expected to finance about two-thirds of the current account deficit, is unlikely to remain a similar source of funding in 2009. Foreign currency reserves of $4.1 billion cover less than one-half of gross and 125% of net short-term external debt. The negative outlook reflects the challenges posed by the deteriorating current account balance in combination with low levels of external liquidity and reduced availability of external funding. The announced $2 billion stabilization loan from The Russian Federation (foreign currency BBB+/Negative/A-2, local currency A-/Negative/A-2) and an additional request for an International Monetary Fund stand-by loan, if forthcoming and implemented, could provide some temporary breathing space. Potentially painful adjustment measures appear unavoidable, however, in order to secure external liquidity over the medium term. "Bolstering the level of foreign reserves in a sustainable way, while at the same time undertaking measures to strengthen the external competitiveness and reducing the import dependency of the Belarusian economy, would be preconditions for revising the outlook back to stable," said Mr. Stukenbrock. "Conversely, a significant widening in the current account deficit and further deterioration in external liquidity could lead us to lower the ratings." Primary Credit Analyst: Kai Stukenbrock, Frankfurt, (49) 69-33-999-247; kai_stukenbrock@standardandpoors.com Secondary Credit Analyst: Remy Salters, London, (44) 20-7176-7113; remy_salters@standardandpoors.com Additional Contact SovereignLondon@standardandpoors.com [2008-11-05]