Ukraine MinFin confirms intention to restructure NBU-owned bonds

The National Bank of Ukraine (NBU) intends to restructure local government bonds that it owns in negotiations with the Finance Ministry, the ministry said in its Jan. 13 press release. “This applies only to those bonds that are in the NBU’s portfolio. Currently they amount to close to UAH 383 bln,” the release said, citing Minister Oleksandr Danylyuk.

Such notes will be exchanged into new long-term notes with coupon rates linked to inflation, according to the press release. Their repayment will be made evenly during a long period of time, or up to 30 years. Current issues of local government bonds mature in 12 years the latest, with most of issues maturing in 2017-2020.

A deputy NBU head cited two goals of the restructuring, namely decreasing the burden on the state budget and implementing a prudent fiscal policy that will meet NBU objectives to ensure low and stable inflation.

Alexander Paraschiy: As we wrote last week, the only positive effect from such restructuring, if it happens, will be cost savings to the state budget in 2017, with no material effect for the budgets of the next several years. The other benefit, which is implicit, will be increased government interest to secure low inflation in Ukraine in the future. Over the last couple of years, high inflation was among the key contributors to successful fulfilment of budget revenue targets. If debt-servicing costs will be linked to inflation, the government will have some benefit from lower inflation. The key question is whether the inflation figures calculated by the government are trustworthy and reflect true price dynamics in Ukraine.