Ukraine gross foreign reserves rise 1.5% in October

Ukraine’s gross international reserves rose 1.5%, or by USD 188 mln, to USD 12.96 bln, the National Bank of Ukraine (NBU) reported on Nov 5. The growth was driven by USD 301 mln in purchases at the ForEx, as well as a EUR 200 mln loan from KfW. The main spending occurred in debt servicing (USD 96 mln) and ForEx interventions (USD 47 mln).

Alexander Paraschiy: The October result is close to what we predicted. Minor external redemptions with near balanced current accounts promised slight changes in gross reserves. At the same time, further gross reserves dynamics will be lower from our initial expectations, with delayed negotiations with the IMF being the key reason. The Fund is requiring narrowing the budget deficit to 3.7% of GDP in 2016 (from 4.2% of GDP, as committed in 2016) while more than UAH 60 bln lost in temporary and one-off collections, as well as tax reform initiatives, make this target quite challenging.

The IMF announced this week it will wait till Ukraine’s 2016 spending plan is approved to decide on the next tranche of USD 1.7 bln. Since the tax reform discussion is only starting, we see minimal chances to receive any extra funding from the IMF this year. The budget is very likely to be approved in very late December, traditionally. Taking into account bureaucratic procedures, the IMF will only provide the tranche next year, we beleive. Thus, we are revising our gross international reserves forecast down to USD 14.1 bln as of end-2015 from USD 16.9 bln estimated previously.