Ukraine gross reserves reach five-year high in 2018

Ukraine’s gross international reserves rose 10.6% yoy
in 2018, reaching USD 20.8 bln, the highest level since October 2013, the National
Bank of Ukraine (NBU) reported on Jan. 8. Reserves increased due to external
financing and a foreign currency purchase by the NBU on the ForEx.

In 2018, the net purchase of foreign currency by the
NBU on Ukraine’s ForEx amounted to USD 1.4 bln. Favorable external market
conditions and increased interest of foreign investors to emerging markets
fostered foreign currency supply in the first half of the year, according to
the NBU, while high agricultural export receipts provided foreign currency inflow
in the second half of the year.

Financing from the IMF, the EU, and the World Bank to
support macrofinancial stability and reforms in Ukraine amounted to USD 2.4
bln. In addition, the government attracted USD 6.1 bln on the domestic and
international markets. At the same time, the government used USD 8.1 bln from
reserves in order to repay and service debt in foreign currency.

The NBU also reported on the increased value of its
security portfolio by USD 230 mln (adjusted to market value and the currency
exchange rate).

In December alone, gross reserves increased USD 3.1
bln, or 17.5% m/m to USD 20.8 bln, driven by USD 2.4 bln in international
financing. In particular, an IMF loan tranche of USD 1.4 bln was received under
the new IMF stand-by agreement. In addition, connected financing from the World
Bank and European Union added USD 1.0 bln to reserves. Secondly, the government
secured USD 540.8 mln from placing local Eurobonds during December. Thirdly,
the net purchase of foreign currency at the ForEx during December amounted to
USD 338.5 mln. Finally, the value of the NBU’s security portfolio increased USD
147.0 mln.

The December reserves outflow was related to repayment
and debt servicing of USD 156.4 mln (including USD 142.2 mln of local
Eurobonds). In addition, the December payments to the IMF totaled USD 158.2
mln.

Evgeniya Akhtyrko: The 2018
year-end gross reserves exceeded our expectations,
mostly due to higher receipts from a local Eurobond placement and a foreign
currency purchase at the ForEx. Reserves of USD 20.8 bln provide a solid
stockpile for increased debt servicing needs in 2019.

In 2019, Ukraine will need to find sources for
replenishing its foreign reserves in order to prevent them from crossing the
threshold equal to three months of imports. Ukraine will need to raise around
USD 10 bln in new foreign currency debt in order to keep its reserves at a
decent level when payments are due in 2019, according to our estimate. This
goal is not likely to be achieved without securing another tranche of the IMF
stand-by loan.