New Sanctions: the Lukashenka Regime May Be Left without Foreign Exchange Earnings

The consequences will be most serious.

Lukashenka used military aircraft to force the plane of the Irish airline Ryanair to land in Minsk. Flight Athens Vilnius was forced to land, journalist Raman Pratasevich and his girlfriend Sofia Sapega were detained.

The West's reaction was not long in coming.

The European Union announced the preparation of sectoral economic sanctions against the export of Belarusian potash and oil products, as well as financial transactions. Charter97.org spoke with Doctor of Economics Barys Zhaliba about the losses the Belarusian budget will incur.

- Let's start with the restrictive measures that have already been introduced. Belavia aircraft are not allowed into the airspace of the EU countries, Ukraine, and the USA. Foreign airlines also fly over Belarus. What does this mean and what losses will the Belarusian budget incur?

- The losses will be tangible. Firstly, the flight over the territory of Belarus (even transit, without landing) is paid for by any airline. These are millions of dollars.

Secondly, the reduction of Belavia's flights to the European Union and Ukraine, which means the loss of profits from sold tickets - also millions. Further, as far as I know, Belavia's revenue is not so much the tickets sold as the refueling of the transit planes that land at our airport with aviation fuel. Big loss again.

There are cargo planes that deliver products that require fast delivery by air. It turns out that enterprises that receive supplies from the European Union, USA, Canada, and so on will lose income.

They will have to look for some other means of delivery, for example, by rail or road, which will cause a loss.

The head of Belavia said that they would not cut staff by 50%, as stated in the document, which was posted on the Internet. It should be noted that these are pilots, unique personnel, whose salaries are quite big. They'll have to get creative somehow.

There is information that the number of flights to Russia and further to China will increase, but this does not compensate for the losses that I have listed. Among other things, the airport Minsk-2 itself has its own sources of income - buffets, bars, and so on. The fewer passengers, the less revenue, so the airport itself may become unprofitable. I do not know how it is there today, this is a separate issue, but because of all this, it will also suffer economically. So, careless movement will cause millions of losses for Belavia and Minsk-2 airport.

- Could the closure of the airspace affect other areas that are not immediately addressed?

- Of course, this will be a big disadvantage because investments are also a transfer of some kind of money capital. Investors must be sure that there is some kind of legislation, it is observed, and the risks of losing money are minimal.

All this has already alerted potential investors, and, as you know, with direct foreign investments, which Belarus has always needed, we are always doing not very well, to put it mildly. These were mainly Russian investors, but this is clearly not enough.

If there are foreign investors, then up to 80% of investments are refinancing. It turns out that very few of them come from outside. Now, even less will come, and we need modern equipment, technologies, especially not from the eastern vector but the western one. So there is definitely a loss of image and investment.

- The industries that may be affected by the sectoral sanctions are also named: the production of potash fertilizers and the oil sector. How serious are these areas?

- In my opinion, these are not such serious losses for Belaruskali because the company's products are bought from us mainly by three countries: China, India, and Brazil. They are unlikely to follow EU or US sanctions. Small deliveries are going to Europe. However, the products of Hrodna Azot go more to the EU, this may affect the work and economic indicators more than on Belaruskali.

If we take oil and oil products, then everything can be much more serious here. Many analysts emphasize that sanctions against Belneftekhim (especially Naftan) have secondary consequences.

All companies that will deal with enterprises under sanctions (and these are both suppliers and buyers) are subject to the same restrictions.

Although I read the opinion of Karbalevich, who does not think so. He does not see the secondary effect of the sanctions but everything will become clear from June 3.

It is also important that oil products and oil provide most of the foreign exchange earnings. In the best years, these products gave Belarus up to a third of the revenue; now, of course, it gives less, somewhere around 10-12%, along with fertilizers. If the currency channel becomes shallow, it is clear that this may affect the exchange rate of the Belarusian ruble.

- If sanctions are introduced, will we expect a currency deficit?

- If sanctions are imposed on the oil sector, we can expect the worst. It is worth noting that in previous years, our government was able to get out of it when sanctions were applied against Belneftekhim and its enterprises.

If the US sanctions have a secondary factor, then there is a threat that the restrictions could be applied to banks that carry out dollar settlements for these enterprises because oil is sold only for dollars.

We will live until June 3 and see how it will be with the sale of products, say, at Naftan. If there are difficulties, it will cause problems with both the currency and the ruble. While it should be noted that our trade balance is active, exports have increased. What will happen next? June will show.

- We also talked about possible sanctions in relation to financial transactions and the placement of Eurobonds. What does this mean for the Belarusian authorities today?

- I do not think that the sanctions will affect this area. However, it should be noted that the last placement of Eurobonds was in June last year - for 1 billion 250 million dollars in two issues, there was a collective buyer.

When, say, a lender or a bank refuses a loan, then you can't do anything about it; however, many European and American banks and investment funds buy bonds. Here, it is more difficult to somehow persuade them not to buy.

Analysts of the European vector note that it is useless for our Ministry of Finance to issue new loans because many will not buy them. Previously, they bought it for fundamental reasons, but now it is unlikely. If they do, they will do it with a very high yield. For example, the placement of dollar bonds on the European market was at 7-8% per annum, which is a fairly high yield for the dollar. Since the western vector is practically cut off, it can theoretically be assumed that they will buy at an even higher yield of 9-10% or even more.

The Ministry of Finance is not able to service such profitability; here, as they say, you cannot order it. It will not have enough foreign exchange resources to pay off high-yield bonds, so we can say that the Eurobond vector is closed.

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