OREANDA-NEWS. May 13, 2011. The Concept of Gross External Debt Management and the plan for its implementation was adopted by joint decision of the Council of Ministers and the National Bank of the Republic of Belarus.

The Concept is based on the National sustainable development strategy, the National strategy for sustainable social and economic development till 2020, the National security concept, and the Government’s action plan for 2011-2015.

International practices demonstrate that an effective system to manage gross external debt is vital for ensuring macroeconomic and financial stability of a country, its international image and credit rating if the system can limit the gross external debt and the amount of money spent on serving it, if it can minimize risks of a default on commitments before foreign creditors.

Inefficient use of external borrowing slows down the economic growth of the borrowing country, deteriorates foreign trade terms, negatively affects the balance of payment, and increases pressure on the foreign exchange rate of the national currency, draining gold and foreign currency reserves.

A significant foreign debt considerably narrows the ability to pursue an independent foreign policy, as the borrowing country has to take into consideration the positions of the creditors. A significant foreign debt also reduces the ability to use monetary instruments. In particular, the reduction of interest rates in the country can lead to the drain of foreign capital; the adjustment of the foreign currency rate becomes problematic, too, as it deteriorates the foreign debt to GDP ratio.

The country analysis shows that Belarus has a moderate level of external borrowing in relation to GDP (52.2%). Of all the closest neighbors, this figure is lower only in Russia (38%). In the European zone and the USA it is much higher. For example, in Germany the ratio stood at 155%, in the USA 99% in 2009.

In order to maintain the economic security of the country and to promptly respond to the changing economic environment, the Concept envisages the creation of a single system of recording gross foreign debt obligations (including debt servicing payments). This system provides for a mechanism of developing a joint policy by the Government and the National Bank regarding the gross foreign debt. This mechanism will help collect the necessary information and statistical data, analyze the current level of foreign debt and payments for debt servicing and maintain the economic security of the country.

The basic criteria of gross foreign debt and their threshold values which are set for Belarus are calculated on the basis of the requirements of international organizations taking into account national circumstances.

Preparing the Concept, experts took into account proposals and remarks of the Interdepartmental Economic Security Commission under the Security Council of Belarus in part of harmonizing the draft Concept with the economic security indicators defined by the National security concept as well as with Belarus President Directive No 2 “Measures for further de-bureaucratization of the state apparatus” of 27 December 2006 in terms of optimizing the collection and processing of necessary statistical data.

The ratio of gross foreign debt to gross domestic product is capped at 55%. The ratio of gross foreign debt to the export of goods and services is capped at 100%. The ratio of external public debt to gross domestic product is capped at 25%. The ratio of external public debt service payments to foreign exchange earnings is capped at 10%. The share of long-term borrowings in total gross external debt is supposed to be at least 50%.

The Government and the National Bank of Belarus will be in charge of gross external debt management.

The Economy Ministry will be responsible for overall coordination of gross external debt management, direct supervision and managerial decisions on the management of external debt of non-financial institutions. If there is a probability that the safety criteria regarding the forecast parameters of gross external debt or its components may be overstepped, the Economy Ministry will make proposals to the Council of Ministers and National Bank on the need to limit borrowings by economy sector by using both economic and administrative tools and methods.

Thus, the Government and the National Bank will be able to effectively monitor and maintain the gross external debt and its components within the limits that ensure minimization of risks and an acceptable level of the economic security.