Ukraine reserves fall 8.9% m/m in November

Ukraine’s gross international reserves declined USD 1.8 bln to USD 18.8 bln in November (2.3 months of future imports), according to National Bank of Ukraine (NBU) data released on December 6.

Alexander Paraschiy:The reserves decline was much stronger than we anticipated. After MinFin managed to raise internally USD 822 mln for the rollover of USD 364 mln state bonds, we expected a reduction of nearly USD 1.0 bln in gross reserves on the back of a USD 955 mln IMF repayment. However, the NBU’s active ForEx interventions (nearly USD 800 mln, according to the regulator) caused monthly foreign currency outflows to be the strongest since October 2012.

Though there are no scheduled IMF payments in December and state bond redemptions are very minor (EUR 70 mln), we expect gross reserves to decline by at least USD 1.0 bln through the month owing to the current political crisis and subsequent tension on the Forex market. All in all, we anticipate gross reserves to fall below USD 18 bln by the end of December, thus breaking the 2.2 months of imports level, or the lowest since 2002.

The low level of reserves (and Naftogaz of Ukraine having yet to repay USD 2.0 bln to Gazprom for the natural gas it imported till end-November) should prompt the government to act to resolve the political crisis (either by means of negotiations or force), otherwise it can lose its control over the ForEx market.