Ukraine gross foreign reserves drop 20.8% to USD 9.9 bln in November

Ukraine’s gross international reserves dropped USD 2.6 bln, or 20.8%, to USD 9.97 bln in November, according to a National Bank of Ukraine (NBU) report on Dec. 5. A Gazprom debt redemption (USD 1.45 bln), state and guaranteed debt repayments (USD 897 mln), as well as ForEx interventions (USD 573 mln) were the key reasons for gross reserves decline.

Alexander Paraschiy: The November gross reserves decline exceeded our expectations. Indeed, the NBU’s gross international reserves were doomed to fall below USD 10 bln by the end of the year after Ukraine accepted the winter gas agreement with Gazprom (which presumed redemption of USD 3.1 bln in gas debt). Still, it was a surprise to reach that level already in a month.

We expected the government would roll over USD 322 mln in local Eurobonds due in November to save some reserves. We also did not anticipate such high ForEx interventions from the NBU after it had relaxed its control of the exchange rate in early November.

Now it looks like gross international reserves will be very close to the USD 7 bln mark (slightly above one month of imports) already in a few weeks, approaching an 11-year low. Against this backdrop, only compliance with IMF requirements (primarily through budget spending cuts) will enable Ukraine to preserve its solvency.