Ukraine foreign reserves plummet 15% to USD 6.4 bln in January

Ukraine’s gross international reserves contracted by USD 1.1 bln in January to USD 6.4 bln, the National Bank of Ukraine (NBU) announced on Feb. 5. The main factors were external debt redemptions of USD 624.4 mln (including USD 220 mln in IMF repayments), as well as USD 464 mln provided to Naftogaz. At the same time, ForEx interventions in January were rather minor (USD 54 mln) compared to previous months.

Alexander Paraschiy: The January gross reserves decline was stronger than we expected. We assumed that external repayments, including debt servicing, would be the NBU’s only foreign currency spending last month and gross reserves sliding to USD 7 bln. At the same time we did not expect substantial support from the central bank for Naftogaz naively assuming that the company would buy foreign curency for its import needs at ForEx market.

The further prospects of Ukraine’s reserves are very unclear and heavily dependent on ongoing negotiations with the IMF. Since we are assuming a positive outcome of the negotiations in our baseline scenario, we project gross reserves growing up to USD 11.5 bln by the year-end.