Minsk taps the Russia-lead EFSD fund for $500mn cash emergency loan

Minsk taps the Russia-lead EFSD fund for $500mn cash emergency loan
Belarus is rapidly running out of money and has only an estimated $1.3bn left in actual $ cash. It has tapped the Russian-led EFSD for $500mn that will probably only get it through a few more months
By Ben Aris in Berlin October 13, 2020

Belarus has tapped the Kremlin for fresh funds as its economy continues to suffer from widespread and persistent protests. The Russian Finance Ministry confirmed that the Russia-led Eurasian Fund for Stabilisation and Development (EFSD, a sort of IMF for Eastern Europe) has approved a 10-year $500mn loan to Belarus,

“The Council of the Eurasian Fund for Stabilisation and Development has approved provision of a $500mn loan to the Republic of Belarus from its own funds. The decision was made on October 9,” the statement read as cited by Prime.

The loan’s grace period is 5 years, and the interest rate is floating and is based on an average yield of Russia’s 7-year US dollar Eurobonds.

Previously, Russian Finance Minister Anton Siluanov said that Moscow and Minsk were working on provision of a $1.5bn loan in three stages with one $500mn tranche coming from Moscow and one from the fund until the end of the year. Russia will provide the remaining $500mn in 2021.

Russia has already offered Belarus debt relief on a $1bn sovereign loan that comes due this year and more relief on $1.5bn of credits due to state-owned VEB and Gazprom. The latter loan has been delayed and moved from the balance sheets of the two corporates to the sovereign balance sheet. However, no new actual cash has changed hands.

Belarus is rapidly running out money. According to the preliminary data, Belarus' gold and foreign currency reserves were down by 1.8% in September to $7.321.4bn as of October 1, 2020, BelTA reports citing the National Bank of the Republic of Belarus data.

In September 2020, the country's gold and foreign currency reserves went down by $136.4mn (or 1.8%) following the August massive fall of $1.4bn (15.8%).

Even more worrying is the internal capital flight as locals drain the ATMs of dollars in anticipation of a repeat of the deep devaluation in 2011 and an economic crisis caused by the protests.

Foreign currency purchases by the population are currently far in excess of sales, reports the central bank. In January-September 2020 Belarusians bought $1.55bn worth of foreign currency more than they sold, BelTA reported, citing data from the National Bank of the Republic of Belarus.

In January-September 2020 individuals bought the equivalent of $7,613.7mn in cash and cashless forms and sold $6,063.2mn worth of foreign currency. The net purchase of foreign currency by individuals totalled $1.55bn.

In January-September 2020 Belarusian economic entities bought the equivalent of $17,284.9mn and sold $15,860.3mn worth of foreign currency. The net purchase of foreign currency made up $1,348.6mn.

The cash portion of reserves has seen most of the drainage, as about $3bn of Belarus’ reserves are in the form of gold and another circa $1bn are in other currencies and miscellaneous securities. That leaves only circa $1.3bn in actual US dollars in cash, which is less than the value of US dollars in cash bought by the population in the first nine months of this year.

The central bank’s reserves have fallen to about 1.4 months of import cover as a result, well below the three months most economists say are needed to ensure the stability of the national currency.

There are already anecdotal reports that some of the large state-owned enterprises (SOEs) have run out of cash and are struggling to pay wages on time.

There are other unconfirmed reports that Belarus' self-appointed President Alexander Lukashenko has turned on the presses and is currently simply printing money to meet the bills. The Belarusian ruble has already been hit by the instability but if the central bank is printing cash to pay salaries then that will also hit the economy in the coming months.

The EFSD has been the lender of last resources for many years now as Minsk has rebuffed all offers by the International Monetary Fund (IMF) of a programme, objecting to the strings that come attached to any IMF money. However, the EFSD also has strings attached to its loans and also demands reforms from Minsk. However, the Russia-lead organisation is a lot more flexible than the IMF and is open to politically motivated decisions.

The $500mn is an emergency loan to inject some liquidity into the system but at the rate that the central bank is burning through money it will not stave off a crisis for more than a few months.

The Kremlin seems to be following a strategy where it is dripping in just enough money to keep the Lukashenko regime going but at the same time is spending the absolute minimum it has to in the hope that the protests can be brought to an end as soon as possible.