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NBU expects USD 2 bln in state Eurobond placement in 2018

Ukraine’s central bank (the NBU) forecasts gross international reserves will reach USD 20.0 bln by the end of 2017 (from USD 18.0 bln as of end-1H17), according to its Inflation Report released last week. The growth will be fueled by USD 2 bln in an additional loan from the IMF under the EFF program and EUR 0.6 bln in an MFA tranche from the EU. Also, the NBU assumes FDI to Ukraine will be flat yoy in 2017 at USD 1.0 bln. No assumptions of a government Eurobond placement in 2017 were mentioned in the report. Earlier, the government expected to place about USD 0.5 bln in Eurobonds in the second half of 2017.

 In 2018, the NBU expects Ukraine will receive USD 6.6 bln in loans from the IMF and will place USD 2.0 bln in Eurobonds. It expects USD 2.2 bln in FDI, which will allow Ukraine to raise gross reserves to USD 27.1 bln as of end-2018. In 2019, the NBU expects reserves to decrease to USD 25.7 bln, due to the repayment of loans to the IMF (USD 1.6 bln) and repayment of government debt due that year.

 Alexander Paraschiy: We do not share the NBU’s optimism for 2017, as we see a risk that the IMF will provide less than what is scheduled in the nearest tranche (USD 1.9 bln). We also see it unlikely that Ukraine will be able to get a second loan tranche from the EU this year. At the same time, we see it realistic for Ukraine to raise USD 0.5-1.0 bln from the placement of Eurobonds this year. All in all, we expect Ukraine’s end-2017 reserves will reach USD 19.0-19.5 bln.

 The NBU’s reserves outlook for 2018-2019 shows just how dependent Ukraine’s solvency is on continued cooperation with the IMF, and therefore on progress with IMF-sponsored reforms. In case Ukraine won’t be able to get new IMF tranches in 2018 - nor improve the investment climate and secure planned FDI growth - Ukraine’s gross reserves may fall to USD 16 bln as of end-2019, which will put the government under risk of default in 2020, when the government and state companies are due to repay about USD 6 bln to external creditors.

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