Belarus Ruble Exchange Rate Is ‘Unsustainable,’ Citigroup Says

Belarus’s ruble should be allowed to depreciate further after being devalued 36 percent last month, according to Citigroup Inc.

“The current exchange rate appears unsustainable even with Russia’s support,” Citigroup analysts led by David Lubin, the U.S. bank’s chief emerging-markets economist, wrote in an e- mailed note today. The former Soviet republic should implement structural changes including “further devaluation” of the ruble, the analysts wrote.

Belarus devalued the ruble as foreign-currency reserves slid to a 20-month low and the monthly inflation rate tripled to 13.1 percent. President Aleksandr Lukashenko, who has ruled Belarus for 14 years, asked the International Monetary Fund and Russia for loans to prop up the economy after the country ran up a current-account deficit equivalent to 16 percent of gross domestic product last year.

The Russian-led Eurasian Economic Community completed a $3 billion bailout package with Belarus June 9, and sent the first $800 million on June 21, while demanding Belarus sell state assets. Belarus must agree to “structural reforms,” including a free-floating ruble, to qualify for a new bailout package, the IMF said on June 13.

“IMF funding is unlikely” given that “political constraints will prevent the authorities from giving sufficient commitment to the program,” Citigroup’s analysts wrote.

Lukashenko, labeled Europe’s “last dictator” by U.S. President George W. Bush’s administration, said during a news conference in Minsk June 17 that the European Union and the U.S. may try to block IMF aid for political reasons.

Default Unlikely

Belarus’s 2015 dollar debt currently yields 12.128 percent, 395 basis points, or 3.95 percentage points, higher than at the start of the year. The yield reached a record-high 12.482 percent May 31.

While Belarus’s fiscal situation “could become difficult” toward the end of this year, a default on the country’s Eurobonds is “highly unlikely” in the next one to two years, according to the note. The government has a “modest” payment of $85 million due this year, according to the note.

To contact the reporter on this story: Jack Jordan in Moscow at jjordan22@bloomberg.net;

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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