Finance Ministry official: Government debt was 31.7% of GDP as of early September

Total government debt amounted to UAH 360.5 bln or ~31.7% of GDP (4Q-rolling, according to our estimates)  as of September 5, which is close to the planned budget threshold of UAH 375.6 (33.0% of GDP, 4Q-rolling), according to a Finance Ministry official, Interfax reported yesterday. Overall public debt (direct and guaranteed) is expected to be 42.5% of GDP at end-2011, the official said. The Finance Ministry official said the government had sufficient financial resources to service its debt, including repayment of its VTB loan (USD 2.0 bln), which matures in December. Svetlana Rekrut: We consider the stated government level expected at yearend of 42.5% of GDP as realistic and think the government does have sufficient resources to redeem the VTB loan given fiscal outperformance, backed by economic growth and privatizations. However, USD 2.0 bln in FX outflow would considerably increase pressure on the financial account of the balance of payments, while IMF funding is still frozen. In September-December 2011, the government must repay ~UAH 11.7 bln in local government bonds and USD 0.6 bln in Eurobonds. We think government will try to refinance its local bonds and the maturing Eurobonds issue with new placements, bringing the government debt to ~40-42% of GDP.