Ukraine gross reserves reach eight-year high in 2020

Ukraine’s gross international reserves increased USD
3.0 bln in December to USD 29.1 bln, reaching an eight-year high, the National
Bank of Ukraine (NBU) reported on Jan. 6. The reserves growth was due to an
inflow from government borrowing, as well as NBU operations at Ukraine’s forex.

The foreign currency inflow related to government
borrowing amounted to almost USD 3 bln (in the equivalent), the NBU reported.
In particular, the receipts from the placement of local Eurobonds in December
amounted to USD 1 bln (in the equivalent), while the placement of international
Eurobonds brought USD 0.67 bln.

The outlays related to the redemption and servicing of
debt in foreign currency amounted to USD 487 mln, including USD 415 mln to the
payments related to redemption and servicing of local Eurobonds.

The NBU’s net purchase of foreign currency at
Ukraine’s forex during December amounted to USD 289 mln. The NBU also reported
a USD 218 mln increase in the value of its securities portfolio.

As of Jan. 1, Ukraine’s gross reserves amounted to 4.8
months of imports, the NBU said.

Evgeniya Akhtyrko: Despite
increased turbulence at the global and domestic financial markets, Ukraine
managed to build up its international reserves significantly. Unlike the
previous episodes of economic crises, the downfall in 2020 did not result in
the collapse of the national currency. Moreover, purchases of foreign currency
by the NBU at Ukraine’s forex exceeded sales by USD 1 bln in 2020.

The high international reserves create a “safety net”
for the government during the peak payments in the foreign currency. However,
they might serve as a negative “chill out” factor, which reduces the incentives
for authorities to strive for reforms-linked financing from the IMF and other
IFIs.

Ukraine’s international reserves are not likely to
undergo significant changes in January. Ukraine has no scheduled payments to
the IMF until Feb. 1. The payment related to the redemption of local Eurobonds
for USD 187 mln is likely to be rolled over by new placements of local bonds in
January.