Ukraine central bank lowers 2016 reserves forecast to USD 18.7 bln

The National Bank of Ukraine (NBU) has lowered its 2016 gross international reserves forecast to USD 18.7 bln from USD 19.6 bln estimated previously, said on April 21 NBU Head Valeria Gontareva, according to Interfax-Ukraine. She indicated the revised forecast was the result of the IMF deciding in February to delay its review of its EFF program with Ukraine, thereby undermining the schedule of reserves accumulation from the next loan tranches.

Alexander Paraschiy: Prime Minister Volodymyr Groysman is sending positive signals about his intentions to start complying with IMF requirements. As one of his first initiatives, he said this week that natural gas prices will rise starting May 1 (as part of structural reforms involving Naftogaz and the domestic market), a plan that had been canceled by his predecessor earlier this month. Such moves create the possibility that the IMF program will be resumed soon. Yet the main concern among the IFIs now is fighting corruption and it’s not clear how Groysman will approach it.

Against this backdrop, lowering the gross international reserves forecast looks quite logical. The NBU number is in line with what we expect (USD 18 bln by the end of 2016) while now we see some upside risks. Firstly, resource prices are recovering on the global markets, which means high chances for a 2016 current accounts deficit lower than our expectation of USD 3.0 bln, or 3.6% of GDP. Secondly, the ForEx situation has calmed in recent weeks and the hryvnia has even strengthened, which means that foreign-denominated cash will be returning to the banking system and boosting gross international reserves. So even with fewer loans from IFIs, we see good prospects for building up gross international reserves if the relatively positive tendencies on the global markets continue.