Ukraine gross foreign reserves rise 0.7% in July

Ukraine’s gross international reserves rose 0.7%, or USD 100 mln, to USD 14.1 bln in July, the National Bank of Ukraine (NBU) reported on Aug. 5. The main factors were the NBU’s purchase of foreign currency (USD 257.8 mln in July) and funds from local Eurobonds placement (USD 98.0 mln). External debt servicing repayments (USD 329.7 mln) ate up reserves accumulations. By the end of July, gross international reserves were enough to cover Ukraine’s 3.6 months of imports. 

Alexander Paraschiy: The gross reserves dynamics are perfectly in line with what we estimated. Delayed natural gas purchases, as well as a decline in debt servicing costs after debt restructuring, are still creating an excess supply of foreign cash in what translates into an accumulation of reserves, even without an anticipated IMF tranche. In July, Ukraine imported only 0.4 bcm of natural gas while in 2H16, nearly 1.5 bcm of monthly average gas imports is needed. In regards to debt servicing costs for July, they reached USD 329.7 mln, half the level in the same year-ago month (USD 755 mln). 

Those two factors of reserves increasing will become irrelevant in upcoming months: Ukraine will boost gas imports soon while the effect of a high comparative base for debt-servicing costs will disappear after August, a year after a debt restructuring deal. Against this backdrop, the only potential factors of rising reserves are an anticipated IMF tranche (about USD 1.0 bln), an EU loan (up to EUR 1.2 bln) and Eurobonds (USD 1.0 bln) placed under U.S. government guarantees. Since we still believe in the IMF tranche arriving in the fall, we are keeping our gross reserves forecast at USD 18 bln for end-2016, which is 4.2 months of imports.