Ukraine reserves plunge 24% to USD 7.5 bln in December

Ukraine’s gross international reserves plunged 24.4%, or USD 2.44 bln, to USD 7.53 bln in December, according to a National Bank of Ukraine (NBU) report on Jan. 12. The reserves concluded 2014 falling USD 12.89 bln, or 63% yoy.

A gas debt redemption to Gazprom (USD 1.65 bln), state and guaranteed debt repayments (USD 738 mln, including USD 181 mln to the IMF) as well as ForEx interventions (USD 831 mln, mainly sold to Naftogaz to enable it to prepay and buy natural gas) were the key reasons for gross reserves decline during December. The main contributor to the gross reserves increase was a loan from the European Commission (USD 617 mln), a local USD-denominated state bonds placement (USD 130 mln) and a loan from the International Bank of Reconstruction and Development (USD 20 mln).

Alexander Paraschiy: The December gross international reserves decline was in line with our estimates. The USD 3.1 bln gas debt redemption to Gazprom, as well as prepayment for gas supply, predetermined the substantial gross international reserves contraction below USD 8 bln by the year end.

The situation with Ukraine’s international reserves looks critical, given that they amount to less than 1.5 months of future imports. After parliament approved an inadequate 2015 spending plan, with the general deficit wider than IMF recommendations, further support from IFIs does not look secured. At the same time, Ukraine does not have any alternatives for gross reserves replenishment to service its external liabilities.

Against this backdrop, we are hopeful the Cabinet will revise the 2015 budget already in January (or at least by mid-February, as declared by the prime minister), which will provide the green light for further IMF support. Under this positive assumption, we are projecting gross international reserves growing to USD 11.5 bln by the end of 2015.