NBU upgrades end-2018 gross reserves estimate to USD 21.6 bln

The National Bank of Ukraine (NBU) sees its end-2018
gross reserves reaching USD 21.6 bln, Deputy Head Dmytro Sologub told
journalists on Apr. 12. This is USD 1.1 bln higher than the NBU’s previous
estimate provided in its January macroeconomic report. The NBU also expects
Ukraine’s balance of payments will be positive USD 2.6 bln in 2018, a USD 0.8
bln increase from its January estimates. The NBU also expects Ukraine will get
a USD 2.0 bln loan tranche from the IMF this year, as well as a MinFin Eurobond
placement of USD 2.5 bln.

Alexander Paraschiy: The NBU’s
revision brings its gross reserve estimate much closer to our forecast of USD
21.7 bln (refer to our February macro report). The NBU’s improved optimism is
likely explained by its recent upward revision of its current account estimates
for the previous years, which now include much more foreign currency proceeds
from remittances of Ukrainians working abroad, as well as expectations of
remittance growth this year.

At the same time, we see growing downside risks to
NBU’s forecasts: the USD 2.0 bln IMF loan tranche looks overly optimistic now,
as does MinFin net proceeds from Eurobonds of USD 2.5 bln in 2018 (we expect
USD 2.0 bln). As for the EU’s MFA loan in 2018, we know now that it will be EUR
0.5 bln, not EUR 0.6 bln as we (and the NBU) expected earlier.

What’s also important in the NBU’s forecast is that
without the IMF deal in 2018, Ukraine’s gross reserves will fall to USD 18.5
bln as of end-2018, or very close to the critical level of three months of
imports. And they will fall below that three-month threshold in early 2019,
raising Ukraine’s solvency risks significantly. In other words, the IMF deal is
critical for Ukraine this year.