Ukraine PM targets 40% GDP growth in five years

Ukraine’s newly elected PM Oleksiy Honcharuk declared
on Sept. 2 a target of cumulative real GDP growth by about 40% in five years.
Real GDP should grow by 5% in 2020 and 7% annually in the following years, he
told a meeting led by the president and involving leaders of the Cabinet,
Parliament and law enforcement. He promised the Cabinet will fulfill these
growth expectations with its decisions. 

Alexander Paraschiy: Such
economic growth, if it happens, will have a direct impact on Ukraine’s payments
under GDP warrants issued in 2015 as part of the USD 15 bln foreign debt
restructuing deal. Assuming the projected by Honcharuk 2020-2024 growth rate,
the NBU-projected inflation rate, and the UAH/USD exchange rate’s development
in line with the hryvnia’s purchasing power parity vs. the dollar, Ukraine will
have to pay about USD 9.0 bln on the warrants in 2022-2026. At a discount rate
of 10%, we estimate the NPV of 2022-2026 payments under the warrants amounts to
USD 5.4 bln, which is 166% of their par value (their current price is 88% of
par).

If the government is serious about the economy’s
growth, the first step it should implement is to offer an exchange of the
warrants into some fixed income instrument. Recall, Danylo Hetmantsev (current
MP and head of the parliamentary finances and taxation committee) said in early
June that the government should consider such an exchange.

While so far we don’t have enough of a basis to share
the PM’s optismitic real GDP growth estimates, we believe that Ukraine’s GDP
warrants still have considerable growth potential.