Ukraine gross foreign reserves fall 2.5% m/m in March

Ukraine’s gross international reserves fell USD 383 mln to USD 15,080 mln (1.8 months of future imports), according to the National Bank of Ukraine (NBU) data released on April 7. External redemptions through the month (USD 453 mln), including a USD 193 mln payment to the IMF, was the main reason for the reserves contracting. Year-to-date, reserves fell 26%, or 5.3 bln.

Alexander Paraschiy: After the NBU withdrew from the ForEx market at the end of February, it was no surprise to see a slowing in the gross reserves decline (vs. 13% m/m in February and January). Since then, the hryvnia was set to a complete laissez faire regime and gross reserves were used only for official external redemptions. The further dynamics of gross reserves will depend on the IMF program. Though the IMF isn’t rushing to sign an agreement, we are quite positive about future cooperation.

After two failed programs and amidst political uncertainty, we see the Fund is requesting that the Cabinet commit to promises in economic reforms prior to any financial support. So far, the authorities already revised the 2014 state budget and anti-crisis legislation, which is believed to be in the list of preconditions for cooperation.

Also Prime Minister Arseniy Yatsenyuk said he expects parliament will approve an updated law on state procurements soon and will change tax rates one more time. With Ukrainian leaders moving to unlock USD 27 bln in total aid just by signing the IMF deal (including USD 14-18 bln from the Fund), we project gross reserves will start increasing. Our estimate is NBU reserves will amount to USD 22.3 bln (3.0 months of imports) by the year end.