Ukraine gross reserves drop 5% in January

Ukraine’s gross international reserves in January
declined USD 1.7 bln, or 5.3% m/m, reaching USD 29.3 bln, the National Bank of
Ukraine (NBU) reported on Feb. 7. The decline was mostly due to NBU’s
intervention at forex.

In January, the NBU increased sales of foreign
currency at Ukraine’s forex in order to mitigate the excessive fluctuations of
the exchange rate and to avoid the further increase of depreciation
expectations. The net purchase of the foreign currency during the month
amounted to  USD 1.3 bln.

In addition, the total government payments for the
redemption and servicing of the state and state guaranteed debt in foreign
currency in January amounted to USD 417 mln, including USD 186 mln for the
redemption and servicing of local Eurobonds and USD 62 mln for the servicing of
international Eurobonds. At the same time, the inflow to the government’s
accounts in January amounted to USD 147 mln, including the receipts from the
placement of local Eurobonds for USD 143 mln.

The NBU also reported a USD 71 mln decline in the
value of its securities during the month.

As of Feb. 1, Ukraine’s gross reserves amounted to 3.6
months of imports, the NBU said.

Evgeniya Akhtyrko: The
significant built-up of international reserves in 2021 helps the NBU to feel
confident during the periods of turmoil at the foreign exchange market. The
NBU’s sale of the foreign currency was significant, but it didn’t lower the
reserves to anywhere close to the “unsafe” level.

In February, the government’s major outlay in foreign
currency will be the redemption of local Eurobonds for USD 368 mln and EUR 349
mln. In addition, Ukraine is to repay the IMF around USD 198 mln. Given the
weak situation at the primary local bond market, the government is not likely
to compensate the outlays related to the redemption and servicing of local
Eurobonds with the receipts from new placements of local Eurobonds during the
month. However, the situation at Ukraine’s forex is likely to improve, and the
NBU might intensify the purchase of foreign currency. It is possible that the
gross international reserves will not change significantly in February.