Ukraine devaluation sentiments have eased, IMF says

Devaluation pressure on the hryvnia exchange rate eased slightly, Christopher Jarvis, the head of an IMF mission visiting Ukraine, said on Apr. 9, according to the Cabinet of Ministers web site. “We are pleased to note that the economic situation in Ukraine did not worsen over the last few months,” he said, reportedly. The IMF mission concludes its two-week visit to Ukraine today.

Alexander Paraschiy: Easy access to external markets on the back of the Federal Reserve’s QE3 program is the key reason for Ukraine’s stability. Yet the economy’s fundamentals remain poor. Industrial output declined 4.8% yoy in 2M13, and the 12-month rolling C/A deficit remains above 8% of GDP. Gross NBU reserves froze at 2.8 month of imports. Unless unprecedented risk appetites exist, a devaluation shock for an economy with such dynamics would be inevitable.

Against this backdrop, we see Jarvis’s statement as a positive message to encourage the financial community. It’s noteworthy that the Cabinet released this statement on the eve of Ukraine’s new Eurobonds placement. Still, we don’t view it as an indicator of an upcoming loan agreement with the IMF, which remains a possibility. However with QE3 running full steam, we do not expect the Ukrainian government to comply with IMF requirements, which means that any documents signed will be pro forma only.