Ukraine foreign debt narrows 1.2% in 1Q16

Ukraine’s gross external debt contracted 1.2%, or USD 1.4 bln, to USD 117.4 bln as of April 1, the National Bank of Ukraine (NBU) reported on June 16. External debt equaled 129.7% of GDP, which is slightly less than 131.3% of GDP at the end of 2015.

The main driver of the debt decrease was private sector liabilities, which contracted USD 1.9 bln to USD 74.2 bln. Liabilities of Ukrainian banks fell USD 1.8 bln, owing to repayments of their external loans, the NBU said (most likely, in the form of conversion of their external debts into equity). 

At the same time, state liabilities increased USD 0.5 bln to USD 43.2 bln by the end of 1Q16. Government liabilities increased USD 0.8 bln on the back of a Japan International Cooperation Agency loan (USD 0.3 bln) and guaranteed debt translation into Eurobonds (USD 0.3 bln). NBU liabilities contracted USD 0.3 bln due to repayments on swap operations.

Short-term liabilities decreased USD 3.6 bln qoq to USD 47.6 bln in end-1Q16 owing to an imposed moratorium on USD 3 bln in Eurobonds that a Russian state agency holds.

Alexander Paraschiy: We expect the gross external debt decline to stop in 2Q16. The economy is reviving gradually, which should be reflected in swelling trade credits. Also we are positive about loans from Western bodies such as the U.S., which have already signed an agreement for USD 1 bln in loan guarantees. And in July-August, we anticipate a positive decision by the IMF executive board. Though the amount of the new loan program could be much lower than initially expected (USD 3.4 bln in the best case vs. USD 5.8 bln anticipated initially), we are not rushing to revise our gross external debt forecast of USD 127 bln by the end of 2016. Private borrowings might easily offset lower IFI loans amid stronger economic performance.