NBU upgrades 2020 gross reserves estimate by USD 1.3 bln

The National Bank of Ukraine (NBU) officially upgraded
its forecast of Ukraine’s gross reserves, estimating now USD 21.6 bln as of
end-2019 (3.7 month of future imports, USD 1.1 bln higher than its January
estimate) and USD 19.1 bln (USD 1.3 bln higher than its January estimate) as of
end-2020. The estimates are based on the assumptions that Ukraine will receive
USD 2.0 bln in lending from the IMF, USD 0.6 bln from the EU and USD 0.8 bln
from the World Bank in 2019. No official lending in 2020 is expected by the
NBU. It also assumes Ukraine will raise net USD 2.5 bln from Eurobond
placements in 2019 and USD 1.5 bln in 2020.

The NBU also estimates Ukraine’s real GDP will
increase 3.4% in 2018 and 2.9% in each of the two following years, according to
its updated inflation report published on Apr. 19. The growth rates estimates
are unchanged from the previous report released in January. The NBU also kept
its CPI forecast unchanged at 8.9% YTD in 2019, 5.8% in 2020 and 5.0% in 2021.

Alexander Paraschiy: The NBU’s
estimates of economic growth are the most conservative among prominent official
forecasts (recall, the IMF sees 3.3% and 3.5% real growth in 2019 and 2020,
while Ukraine’s MinFin sees rates at 3.6% and 4.0%, respectively). Its gross
reserves forecasts again highlight the importance of the IMF deal in 2019,
which will secure up to USD 3.4 bln in financing this year (including EU and
World Bank tranches). Without the IMF deal, Ukraine’s gross reserves will fall
to USD 18.2 bln (3.1 months of future imports) in 2019 and USD 15.7 bln in
2020, which will be just 2.6 month of future imports.

Also, taking into account this week’s position of
Deputy Finance Minister Sergiy Marchenko that “successful placement of
Eurobonds is practically impossible” without the IMF deal, we view it as
critically important for Ukraine to secure the IMF loan tranche no later than
3Q18 in order to avoid default and currency shock. So far, we continue to
consider the deal with the IMF as our base-case scenario.