Ukraine gross reserves reach seven-year high in 2019

Ukraine’s gross international reserves increased 22%
yoy to USD 25.3 bln in 2019, the National Bank of Ukraine (NBU) reported on
Jan. 8. The reserves reached a seven-year maximum due to the favorable situation
on the currency market secured by accelerated economic growth and a consistent
inflow of foreign capital to Ukraine.

The NBU noted that foreign currency supply exceeded
demand during the year. High supply was secured by Ukrainian exporters, mostly
agricultural ones, and by foreign investors who sold USD 4.3 bln for purchasing
UAH-denominated local bonds. The supply was also supported by external
financing taken on by state and private companies. At the same time, the
importers’ demand for foreign currency was moderate mostly due to declining
global prices for energy resources. The volume of repatriated dividends also
dropped.

During the year, the central bank replenished the
reserves by purchasing excess foreign currency on the market without interfering
with the market trend of hryvnia appreciation. In 2019, net purchases of
foreign currency by the NBU reached USD 7.9 bln, which is the highest for the
last 14 years.

In December, gross international reserves increased
15.4% m/m, or USD 3.4 bln. Net purchases of foreign currency by the NBU
amounted to USD 2.9 bln. In addition, the receipts from the placement of local
Eurobonds (USD 514 mln equivalent) exceeded the outlays for the redemption of
the stated debt in foreign currency (USD 220 mln equivalent). The NBU also
reported an increase in the value of its securities portfolio of USD 144 mln.

As of Jan. 1, Ukraine’s gross reserves amounted to 3.9
months of imports, the NBU said.

Evgeniya Akhtyrko: The growth
of gross international reserves in December exceeded all expectations. Strong
reserves increase the confidence of the central bank and country’s economy in
general. However, under the floating currency exchange regime, reserves serve
for smoothing out short-term fluctuations, and they cannot be employed for
solving long-term problems.

The major foreign currency outlays in January will
include USD 590 mln for the redemption and servicing of local Eurobonds.
MinFin’s schedule of primary local bond auctions for January does not assume
the placement of local Eurobonds during the month. Apparently, the government
expects the demand of non-resident investors for long-term UAH-denominated
local bonds in January to stay high. And this should assure a strong inflow of
foreign currency to Ukraine’s ForEx, enabling the NBU to continue purchasing
foreign currency on the market and compensate the outflow related to the
payments on local Eurobonds.

If the situation at Ukraine’s ForEx continues to be
favorable, gross international reserves in January might increase around 2%.