Ukraine international reserves fall 5% on October redemptions

The National Bank of Ukraine’s (NBU) gross international reserves fell USD 1.0 bln m/m to USD 20.6 bln, according to official data released on November 7. This level corresponds to 2.5 months of Ukraine’s future imports. An IMF repayment (USD 651 mln), net ForEx interventions (USD 297 mln) and the government’s repayment of local Eurobonds (USD 108 mln) were the key factors.

Alexander Paraschiy: The October reserves decline was exactly what we anticipated for the month. In November, the decline is very likely to be even bigger. Ukraine will have to arrange another IMF redemption (two tranches totaling about USD 920 mln) and pay back net USD 314 mln on internal Eurobonds. What’s more, this month the government will have to facilitate payment of about USD 850 mln in Naftogaz’s August natural gas debt to Gazprom, as well as pay USD 1,355 bln for natural gas imported in October. On top of that, Ukraine’s weak ForEx liquidity may spark growth in speculative demand for cash dollars from the population.

Even disregarding the gas debt, we should see gross reserves fall by at least USD 1.5 bln in November to nearly USD 19 bln, or 2.3 months of future imports. In the worst case, we could see less than USD 17 bln in reserves just in one month. Needless to say, the pressure on the local currency will be enormous this month.