OREANDA-NEWS. On 15 August 2008 was announced, that Belarus’ Standard & Poor’s sovereign rating may be upgraded if the country manages to boost its gold and forex reserves, balances financing of current account transactions and keeps its fiscal policies measured, according to S&P estimates.

Standard & Poor's Ratings Services on July 24 affirmed Belarus’ ‘B+’ foreign currency, ‘BB’ local currency long-term and ‘B’ short-term sovereign credit rating with a stable outlook.

S&P said that the ratings reflect unusually large contingent liabilities for the sovereign, due to the state-dominated nature of the economy, while external liquidity is weaker than that of its peers.

“Moreover, the uniquely centralized nature of the political system reduces the predictability of policy choices,” the ratings agency said.

“However, the ratings are supported by comparatively high wealth and development levels, low general government debt, relatively strong external balance sheet and significant economic potential,” it noted.

S&P added that the energy price shock has so far had a less adverse impact on the Belarusian economy and on balance sheets than initially expected.

“Strong growth in non-energy exports and high investment growth helped to sustain high economic growth and contained the deterioration in the current account and the government's budget balance,” the ratings agency noted.

“The stable outlook balances Belarus’ low government and external debt burdens against considerable challenges stemming from rising energy prices, the need to boost competitiveness, and fiscal pressures that may emerge as inflation is brought under control,” S&P added.

Belarus’ peers are Cambodia, Ghana, Mozambique, Papua New Guinea, Surinam, Georgia and Ukraine.

S&P believes gas prices for Belarus will reach the world level by 2011. Belarus will have a deficit of current account of balance of payments amounting to 9.3% of GDP, up from 6.5% in 2007.

The rating agency expects Belarus’ economic expansion to slow down to 6.3% annually in 2009-2011.

Some specialists familiar with the situation in Belarus believe S&P is too conservative, though.

“We believe it would have been more logical for S&P to upgrade the foreign currency credit rating to BB- [one notch], or at least revise the forecast up to positive,” Prime-Tass analyst Alexander Mukha said.

The expert noted Belarus’ considerable economic expansion.

According to the Statistics and Analysis Ministry, Belarus’ GDP grew 10.4% in comparable prices in January-June 2008 to 55.29 trillion rubles, compared to 8.4% in January-June last year. The target for the whole year had been set at 11%.

In the U.S. dollar equivalent, Belarus’ 12-month GDP has exceeded the USD 50 billion-mark to reach USD 51.629 billion, up 27.6%, which makes USD 5,340 per capita.

“It would be more relevant to calculate PPP GDP per capita rather than GDP in current prices, though. Belarus’ PPP GDP amounted to USD 11,416 per capita in 2007, and is expected to reach a new record high of USD 13,300 per capita in 2008,” Mukha said.

The structure of the gross domestic product, calculated using the expenditure method, has improved, according to the Statistics Ministry. Net exports [exports minus imports] in GDP accounted for 1.7% in January-June 2008 with a minus sign [imports prevailed], up from minus 5% in the period last year, which means trade tendencies are getting better.

Belarus’ GDP structure looks a lot like that of developed countries, final consumption expenditure accounting for 73.2%, including household expenditure, at 53.5%, state authorities’ expenditure for 18.5%, non-profit organizations’ expenditure for 1.2%, gross savings for 27.1%, including gross capital formation, at 25.4% [all data are January-March 2008].

The income-based GDP is characterized by the increase in the share of gross mixed income and profit to 34.3% from 29.4% in January-March 2007.

In January-March 2008, labor compensation [including social security transfers] accounted for 48.7% of GDP, down from 50% in the first three months of 2007.

At the same time, the share of net production and import taxes [taxes minus subsidies] decreased to 17% from 20.6%.

According to the central bank, direct foreign investment rose seven times on the year in the first quarter of 2008 to USD 897.6 million [by balance of payment methodology], which attests to Belarus’ investment appeal.

Also, Belarus plans to increase gold and foreign exchange reserves by 2010 to three-month export level, the equivalent of USD 10 billion to meet international standards. Belarus’ gold and forex reserves rose 11.1% in the first six months of 2008 to USD 5.548 billion.

The gas price-related impact on Belarus will not be as devastating as S&P experts see it, Belarusian experts believe.

“Should Russian gas prices grow faster than expected, the financial position of Belarusian companies may be affected,” Deputy Economy Minister Tatiana Starchenko told reporters, “but Belarus’ economic potential will help prevent crises.”

“In 2006, specialists were predicting a recession and shock and crisis. But last year’s results proved all of them wrong,” Starchenko said.

Commenting on inflation trends, she said Belarus’ Economy Ministry expected consumer price inflation between 14% and 15% this year.

“If we manage to have the January-June inflation rate [7.3%] in the second half of 2008, it will be a good result,” Starchenko said.

In late June, Economy Minister Nikolai Zaichenko said consumer prices would not exceed 10%. In previous years, Belarus’ inflation forecast did not exceed 6%-8%.