Ukraine central bank provides optimistic gross reserves outlook

The National Bank of Ukraine (NBU) sees Ukraine’s gross international reserves increasing to USD 18.2 bln as of end-2015 and to USD 25.4 bln by end-2015, according to the regulator’s report released on April 2. The NBU believes Ukraine will achieve such indicators (recall, end-2014 reserves were USD 7.5 bln) via attracting multilateral and bilateral loans, as well as through the re-profiling of sovereign and quasi-sovereign Eurobonds via  the debt operation recently initiated by the Ministry of Finance. In particular, Ukraine is planning to save USD 5.3 bln and USD 3.4 bln from debt operation in 2015 and 2016, respectively.

Alexander Paraschiy: The NBU’s gross reserve forecast looks slightly more optimistic than that provided in the joint document with the IMF (USD 22.3 bln as of end-2016). At this stage, we believe, it’s too early to seriously count on a successful debt operation. The plan presented, standing alone, diminishes the importance of debt operation as it shows little reason for Eurobond holders to agree to restructuring.

In particular, if adjusted for a non-successful debt operation, the NBU reserves would be USD 16.8 bln as of end-2016, which is 3.2 months of future imports, based on NBU numbers. This amount totally satisfies the IMF metrics on the safe coverage of imports. What’s more, gross international reserves at the level of 3 months of imports is more than enough for a country that is going to stick to a flexible exchange rate policy. We still expect that the Ukrainian government will provide more information to international bond holders that will show them the critical importance of the debt operation task for Ukraine’s sustainability.