Ukraine MinFin sees GDP growth at 3.6% in 2019, 6.3% in 2021

Ukraine’s Finance Ministry expects the country’s real
GDP will grow 3.6% in 2019, 4.0% in 2020 and 6.3% in 2021, according to the
Cabinet’s draft resolution stipulating budget policy for the next three years,
published by the epravda.com.ua news site on Apr. 18. Based on the draft,
Ukraine’s nominal GDP will be USD 122.4 bln in 2019 and will surge to USD 144.9
bln in 2021, assuming an average exchange rate of UAH 30.5/USD in 2019 and UAH
31.8/USD in 2021. The document also assumes CPI of 6.5% YTD in 2019 and 4.8% in
2021.

The IMF’s recently published World Economic Outlook
provides more conservative numbers for Ukraine: real GDP growth is projected at
3.3% in 2019 with a steady acceleration to 3.7% in 2021 and 4.0% in 2023. At
the same time, the IMF sees a stronger Ukrainian currency, forecasting a UAH
29.3/USD rate in 2019 and UAH 30.6/USD rate in 2021.

Alexander Paraschiy: Those who
believe in the macro estimates of Ukraine’s MinFin should consider buying
Ukraine’s GDP warrants (UKRAIN’40), which will pay about USD 0.2 bln (6% of
par) in 2022 and USD 1.4 bln (44% of par) in 2023, and possibly more in the
following years.

However, we believe the IMF’s more conservative
outlook for Ukraine’s economic growth is more reliable. If the IMF’s forecasts
are fulfilled, Ukraine’s payments under warrants will be much smaller than
under the MinFin’s forecasts: about 1.4% of par in 2021, 3% in 2022, 4% in
2023, 7% in 2024 and 8% in 2025. Such a payment schedule implies a much smaller
value of the warrants. At the same time, we remain bullish about the warrants,
as the likelihood is high that Ukraine will show more than 6% in annual real
GDP growth in some of the next 20 years.