OREANDA-NEWS. May 4, 2012. Standard & Poor's Ratings Services affirmed its long- and short-term sovereign credit ratings on the Republic of Belarus at 'B-/C', S&P said in a statement.

At the same time, S&P revised the outlook to stable from negative. The transfer & convertibility (T&C) assessment for Belarus is unchanged at 'B-'. The recovery rating on Belarus' senior unsecured debt remains at '4'.

The outlook revision reflects our view of signs of stabilization in Belarus' economy. Foreign currency reserves have strengthened, immediate pressure on the exchange rate has eased, and inflation, although still very high, is decreasing. Furthermore, short-term external financing constraints have lessened because Russia has injected inflows of funding and capital equal to 12% of Belarus' 2012 GDP.

The ratings on Belarus are constrained by political risks, high government financing needs, reliance on external funding, and the government's reluctance to introduce much-needed structural reforms to improve the country's competitiveness and growth prospects. The ratings are supported by the country's relatively high, albeit declining, GDP per capita for the rating level (USD 4,093; 2012 estimate), moderate general government deficits, its substantial industrial capital stock, and its highly educated workforce. These factors provide the potential for a relatively rapid improvement in productivity should the government pursue structural reforms to enhance efficiency in state-owned enterprises and support private-sector growth.

After nearing financial collapse last year, the Belarusian economy responded quickly to the eventual crisis resolution measures implemented by the government, and mostly with the support of Russia. Russia facilitated a loan to Belarus of about 7% of GDP from the Eurasian Economic Community Anti-Crisis Fund (ACF), on condition that Belarus embark on a stabilization program. Russia also provided a loan of about 2% of GDP through Sberbank. In return, Belarus sold its remaining 50% share of Beltransgaz (the natural gas pipeline company) to Russia's Gazprom for about 6% of GDP, and agreed to sell other government-owned assets amounting to almost 13% of GDP during 2012-2013. Total capital inflows from Russia have amounted to 12% of 2012 GDP since the start of stabilization efforts. Furthermore, Russia and Belarus signed a new agreement for oil and gas import prices that puts the 2012 gas price at a 44% discount from its 2011 level. This will amount to nearly 4% of 2012 GDP in savings over the next two years. In addition, the new discounted oil price is expected to create savings for Belarus of about 1.5% of GDP this year.