Ukraine state debt falls 1.7% in 2M16

Ukraine’s state debt fell 1.7% to USD 64.3 bln in 2M16 from USD 65.4 bln at the end of 2015, the Finance Ministry reported on April 5. The main reason was a 5.3% YTD decline in internal debt, or USD 1.2 bln, to USD 20.9 bln. External debt remains effectively flat YTD at USD 43.4 bln. The share of external liabilities increased to 67.5% of total state debt as of end-Febuary, compared to 66.3% at the end of 2015.

Alexander Paraschiy: The main factor in the decline was hryvnia devaluation of more than 10% to UAH 27/USD in February from nearly UAH 24/USD in early January. The Finance Ministry was actively issuing state bonds (UAH 15.6 bln) and local Eurobonds (USD 917 mln) during the period. However, that was reflected only in the dynamic of UAH-denominated figures. In particular, UAH-denominated internal debt even increased 6.8%, or by UAH 36.0 bln, in 2M16. Amid the unfolding political crisis, difficulties have emerged in projecting state debt dynamics. Initially, we assumed the arrival of an IMF tranche in 1Q16, yet it has yet to arrive, with little signs that it will come anytime soon. Against this backdrop, there is a high chance that Ukraine’s end-2016 public debt will be much lower than our forecast of USD 74.5 bln (90% of GDP).