Ukraine gross foreign reserves inch up 0.7% in February

Ukraine’s gross international reserves inched up 0.7%, or by USD 96 mln, to USD 13.5 bln in February, the National Bank of Ukraine (NBU) reported on March 3. The main factor was a USD 431.3 mln inflow from a local Eurobond placement, most of which was spent on ForEx interventions (USD 158.8 mln net), swap repayments (USD 150.1 mln), and debt servicing (USD 63.2 mln).

Alexander Paraschiy: As in previous months, local Eurobonds rescued the government’s finances amid a lingering political scandal that froze cooperation with the IMF and other donors. Recall in early February, Economy Minister Aivaras Abromavicius resigned amid alleged corruption in the president’s entourage, leading the IMF to pause its USD 1.7 bln loan tranche. Against this backdrop, Ukraine faces serious uncertainty with potential foreign cash inflow. Initially, we anticipated gross reserves to reach near USD 20 bln by the year end on the back of IMF loans and other international support. However, without the IMF, Ukraine will have either to balance external accounts with the deeper hryvnia decline or to spend gross reserves to cover the trade deficit. 

What’s more, there will be regular spending on debt servicing.  In particular, yesterday Ukraine paid the first coupon on restructured Eurobonds (USD 487.7 mln) in what already promises gross reserves to sink below the USD 13 bln mark by the end of the month. With the political crisis prolonged, we should be ready for gross reserves gradually approaching the USD 10 bln mark by the year end.