Moody's downgrades Belarus on financing difficulties

Moody's yesterday downgraded Belarus from B1 to B2 based on concerns over the country's significant near term external financing gaps, and the medium term difficulties of reorienting the current external debt funded, domestic demand-led growth model.

Belarus' current account deficit was 16% of GDP in 2010 and current levels of official foreign exchange reserves of approximately $1.3 billion fall short of Moody's estimate of a 2011 external financing requirement of between $8 and $10 billion. While there are some indications that Belarus will be able to secure external funding from Russia, debt will continue to worsen.

Moody's also has concerns over the country's ability to move away from its current external debt fueled growth model to one reliant on productivity and competitiveness improvements for output growth. In recent years, external borrowings have funded wage increases, high credit growth, and subsidies for households and corporations, says Moody's, which in turn eroded competitiveness and shifted the growth model away from exports and towards domestic demand. This has led to a steady deterioration in Belarus' current account deficit, external debt and government debt ratios.