Ukraine state debt inches up 0.5% to 87.9% of GDP

Ukraine’s state and guaranteed debt increased 0.5% m/m (USD 313 mln) in May to reach USD 67.7 bln (UAH 1.4 trln), which is near 87.9% of GDP. Internal debt declined 1.2% (USD 294 mln) while external debt increased 1.4% (USD 607 mln). The main factor in the internal debt decline was a minor local state bond placement (UAH 3.8 bln for the needs of the State Deposit Guarantee Fund), amid substantial redemptions (UAH 11.7 bln in May). External debt increased on the back of a USD 1 bln Eurobond placement, which was arranged under U.S. state guarantees. The share of external debt by the end of May increased to 64.3% compared to 63.7% in the prior month.

Alexander Paraschiy: Robust budget revenue has enabled the reduction of internal debt for three consecutive months now. The authorities simply stopped printing hryvnias while repaying internal liabilities. As a consequence, internal debt shrunk by UAH 49.4 bln between February and May. Given that slowing state collections and growing expenditures are expected in 2H15, we project internal debt will resume growth.

External debt will keep growing as well, assuming further support from IFIs. We anticipate USD 5.0 bln from the IMF, EUR 1.2 bln from the EU and UAH 1.8 bln from the World Bank until the end of 2015. At the same time, we will have to pay back USD 0.8 bln to the IMF and nearly USD 4.3 bln on Eurobonds (which are subjet to maturity extension).

All in all, assuming no debt restructuring in 2015, we expect the state debt to approach the UAH 1.7 trln level, which is 91.7% of GDP, by the year end.