UPDATE 1-Moody’s cuts Belarus credit rating to B2 from B1

* Belarus rating pushed further down into junk status

* External financing needs a medium-term risk

By Daniel Bases

NEW YORK, March 29 (Reuters) – Moody’s Investors Service
cut Belarus’ sovereign foreign currency credit rating one notch
to B2 from B1, driving it deeper into junk territory on
Tuesday, citing concerns over near-term external financing

Moody’s decision brings it in line with Standard & Poor’s B
rating. Fitch Ratings does not cover Belarus.

“Current levels of official foreign exchange reserves of
approximately $1.3 billion fall short of Moody’s estimate of a
2011 external financing requirement of between $8 (billion) and
$10 billion,” the firm said in a statement.

Belarus had a current account deficit of roughly 16 percent
of gross domestic product in 2010, and while it does expect to
receive some financing from Russia as well as through
privatizations, a large portion is expected to come through
debt issuance, Moody’s said.

“Belarus’ debt levels will continue to worsen and the
funding may not be enough to prevent external financing gaps
from emerging again over the medium term,” Moody’s said.

Earlier on Tuesday Belarus effectively allowed its
currency, the Belorussian rouble (BYR=: Quote, Profile, Research), to devalue by 10
percent, in a move that analysts say could help it secure
bailout loans but would not by itself fix an unsustainable
foreign trade gap.

The Belorussian rouble has come under pressure from the
country’s big trade deficit and increased spending by the
government in the run-up to the December presidential election,
when President Alexander Lukashenko won a fourth term.

To plug the gap, Belarus has asked Russia and other
ex-Soviet nations for $3 billion in loans. Moscow says it wants
to see credible adjustment proposals before it considers
emergency help. For more on the devaluation click

A second risk highlighted by Moody’s is a potential
inability of Belarus to smoothly transition from its current
external debt-funded growth model to one that relies on
productivity and competitiveness improvements.

Relatively high per capita income growth is due mostly to
external financing assistance and subsidized oil imports from
Russia, Moody’s said.

Belarus’ political restraints on its citizens in exchange
for an “entrenched social welfare and subsidy system” makes
changing the economic system difficult, Moody’s said.

“If structural adjustment policies are to be initiated,
potential political repercussions will represent an additional
risk,” the firm said.
(Reporting by Daniel Bases and Caryn Trokie; Editing by
Padraic Cassidy)

UPDATE 1-Moody’s cuts Belarus credit rating to B2 from B1