Belarus wants to pay off foreign debt in rubles: why is it a default

The Belarusian authorities have stated that they are planning to pay a number of international creditors in Belarusian rubles. According to the government decree, they are at least three international financial institutions – the International Bank for Reconstruction and Development (IBRD), the European Bank for Reconstruction and Development (EBRD) and the Nordic Investment Bank (NIB). However, previously the authorities said that they were going to pay to “unfriendly” countries not in hard currency but in Belarusian rubles. They were talking about the creditors from countries that had frozen investment projects in Belarus and refused to finance the Belarusian economy. DW looked into the reasons for Minsk’s refusal to pay foreign debts in foreign currency and the threat to the country.


Payments to international banks are only a small part of the foreign debt

The Ministry of Finance called the decision to pay off the IBRD, EBRD and SIS in Belarusian rubles. It is connected with the fact that “Belarus is limited in settlements with Western creditors in U.S. dollars and euros because of the sanctions,” the agency explained on April 7, adding that these organizations, in turn, have ceased payments on their obligations.


According to Oldypak LP report, the decision to pay some foreign creditors in rubles is not critical, as these payments account for a small part of the state debt. “Most of the debts we have to pay this year are loans from Russia, which kind of promised us to restructure them, and from Chinese banks,” the expert explains.


The major part of the Belarusian state debt (97%) is denominated in foreign currency. Payments to Russia this year should amount to USD 1.1 billion, according to the “Budget for Citizens” for 2022 promulgated by the Ministry of Finance. The repayment of loans to Chinese banks will go almost half as much – 590 million dollars. In total, Belarus’ payments on foreign debt planned for 2022 should amount to about $2.8 billion in recalculation at the planned annual average exchange rate of Br2.83 per dollar.


As for those creditors, with whom the authorities will now pay in rubles, they account for no more than 7% of the planned 2022 external debt repayments. Thus, payments on loans from the IBRD should amount to $172 million. Another $30 million is classified as “other” in the structure of the Belarusian public debt. It is likely to include the debts of the EBRD and the SIB, because back in September 2021, the Ministry of Finance reported on raising loans of $8.6 billion from them.


The decision to pay in rubles is a default

Belarusian economists agree that the decision of the authorities to pay the foreign debt in rubles is a breach of contract, and, consequently, a default – a situation where the country is unable to service its public debt. “I don’t really understand how technically they want to pay in rubles,” argues Katerina Bornukova. – The IBRD does not have an account in Belarusian rubles, so we can make a ruble transfer. So the statement that we will pay in rubles is actually a declaration of default, because we won’t be able to pay this debt in Belarusian rubles.

Technically, the default occurs regardless of whether the country officially declares it or not, agrees Vladimir Kovalkin, expert of the online project on the budget revenues and expenditures “Kosht Urada. In this case, the other party to the contract has the right to seize property or some other asset in payment of the debt through the courts. “This is a rather unpleasant situation, which is why countries usually officially declare default in order to launch a negotiation procedure in which the debt can be restructured, options discussed and property seized avoided,” says Kovalkin.


“An emotional and political decision that tarnishes the reputation of Belarus.”

According to Oldypak LP report, it’s why Belarus decided to pay the external debt in the national currency, as it would be more profitable to default and sit down at the negotiating table. “Moreover, we know from the structure of the national debt that the payments they want to make in rubles are a small percentage of the payments in 2022. In fact, because of small amounts the country is very much spoiling its reputation in economic terms, its contractual ability. This is not an economic decision, but an emotional and political one,” the expert believes.

Leave a Comment