Ukraine won’t default even without IMF deal, finance minister claims

Ukraine’s Finance Minister Serhiy Marchenko acknowledged
that financing the 2020 budget gap will be a challenging task during an Apr. 10
television talk show, but he ruled out debt restructuring talks or default.
“There are no conditions for initiating debt restructuring. The debt burden is
absolutely controllable … Our negotiations with the IMF are at the final stage.
We are expecting loan support from the World Bank, the E.U. Commission,” he
said.

Answering a question on whether Ukraine will default
in case an IMF deal falls through, he said, “No, but it will be a very
difficult situation.” He said that in case Ukraine faces a limited ability to
attract external financing, the government “will implement other radical
steps.” At this stage, he expressed his hope that the parliament will “demonstrate
good will and adopt the necessary legislation” for the IMF deal.

The updated 2020 state budget draft foresees UAH 298
bln in a budget gap (an increase of 3.0x compared to the existing budget plan),
which will be covered by UAH 297 bln in net borrowings (up 3.6x compared to the
existing plan). Of the total net borrowings, UAH 135 bln (up 9.8x) are external
and UAH 161 bln (up 2.3x) are internal.

Alexander Paraschiy: Net
borrowings of MinFin for the rest of the year are planned at USD 10 bln
equivalent. Together with external loans due in the rest of the year (USD 4
bln) and internal debt due (USD 4 bln equivalent), the government’s total
financing and refinancing needs will amount to USD 18 bln. In case of an IMF
deal, Ukraine could secure financing (together with related multilaterals) of
just USD 6-8 bln. Provided all the official support is secured and all the
internal debt due in 2020 will be rolled over, Ukraine will have to seek for
additional financing of USD 6-8 bln in the rest of 2020. Therefore, even in
case Ukraine resumes the IMF program, state deficit financing and repayment
needs will be a challenging (but doable) task.

Without the IMF deal, the gap will increase to USD 14
bln, which is impossible to finance, in our view. Therefore, we do not share
the finance minister’s optimism about the ability to avoid default without the
IMF deal. We continue to expect the IMF deal as the base-case scenario for
Ukraine. We will continue to monitor the key event that best indicates how
close Ukraine is from closing the deal: progress with the IMF-required banking
law.