IMF restructuring rumors persist

In a comment to the press yesterday, Vadym Kopylov, Ukraine’s Deputy Economy Minister, said Ukraine is negotiating to restructure about USD 3.0 bln of its debt to the IMF due this year. He said Ukraine was seeking to extend the maturity by 10 years. Kopylov gave no material details on the restructuring plans. It remains to be seen if his comments reflect the official position of the government. As recently as Tuesday, Prime Minister Mykola Azarov denied Ukraine was in talks to restructure its debt to the IMF. Moreover, Azarov said Ukraine is in a position to repay scheduled tranches on time and in full. Max Alier, the IMF’s representative in Ukraine, later said the IMF had not received any official requests for restructuring and that the IMF does not actually have any mechanisms to restructure its loans. The implication is, in essence, that Ukraine has just one choice left if it wants to keep its debt to the IMF flat this year – unfreeze its current standby loan program.

Vitaliy Vavryshchuk: We do not expect Ukraine to get any concessions from the IMF unless the government proceeds with IMF-required actions, namely raising household gas tariffs, which Ukrainian politicians up to the president have pointedly refused to do. We keep our view that while Ukraine will face a large external funding gap this year (c. USD 7.0 bln or 3.7% of GDP), the NBU will still be able to cover FX market shortages with reserves and keep the hryvnya broadly stable. NBU reserves fell just 1% mom (by USD 0.3 bln) in February despite repayment of a sizable USD 0.6 bln in IMF debt, which clearly indicates that external funding pressures are not high.