Ukraine state debt grows 1.4% in March

Ukraine’s state debt increased 1.4% m/m in March, or USD 0.9 bln, to USD 65.2 bln, Finance Ministry reported on May 11. The main driver was a USD 334 mln loan from the Japan International Cooperation Agency, swelling foreign debt by 1.6%. Domestic debt also grew in USD terms due to hryvnia appreciation in March. As a result, internal debt added 1.0% in USD while losing 2.1% in UAH. The share of external debt remained almost unchanged at 67.6% of total public debt (compared to 67.5% a month ago).

Alexander Paraschiy: The February corruption scandal, which triggered a political crisis and Cabinet reshuffling, delayed all scheduled borrowings. Initially, we  anticipated for 1Q16 at least a USD 1.7 bln IMF tranche and USD 1.0 bln in Eurobonds under U.S. state guarantees. However, we are already in mid-May and authorities are only discussing the potential resumption of cooperation with the IMF, with the next tranche arriving not earlier than the end of June. 

Against this backdrop, we are lowering our end-2016 state debt forecast to USD 70.8 bln (85.1% of GDP) compared to USD 74.5 bln (89.6% of GDP) estimated previously, owing to lower borrowings from the West. We can only expect two wires of USD 1.7 bln each in 2016, and that is not ensured considering the IMF is demanding anti-corruption measures that have been resisted so far. However, the new Cabinet has undertaken some positive reforms in its first weeks and we think the next wire has a better than 50/50 chance to be approved with the expectation that the Cabinet will do its homework.