NBU: Ukraine’s reserves could rise to $20bn in 2017

NBU: Ukraine’s reserves could rise to $20bn in 2017
Ukraine's reserves could rise to $20bn this year. / bne IntelliNews
By Ben Aris in Moscow July 18, 2017

Ukraine’s central bank (NBU) forecasts gross international reserves will reach $20bn by the end of 2017 from $18bn as of end-1H17, according to its Inflation Report released last week. However, bankers warn that if things go badly gross international reserves could fall to $16bn and threaten default on upcoming debt repayments. 

The growth will be fueled by $2bn in an additional loan from the IMF under the EFF program and EUR 0.6bn in an MFA tranche from the EU.

Also, the NBU assumes FDI to Ukraine will be flat y/y in 2017 at $1bn.

Despite comments from senior Ukrainian officials that the country could offer a Eurobond in the autumn there is still no assumption of a government Eurobond placement in 2017 in the official budget forecast. Earlier, the government expected to place about $0.5bn in Eurobonds in the second half of 2017.

In 2018, the NBU expects Ukraine will receive $6.6bn in loans from the IMF and will place $2bn in Eurobonds. It expects $2.2bn in FDI, which will allow Ukraine to raise gross reserves to $27.1bn as of end-2018. In 2019, the NBU expects reserves to decrease to $25.7bn, due to the repayment of loans to the IMF ($1.6bn) and repayment of government debt due that year.

“We do not share the NBU’s optimism for 2017, as we see a risk that the IMF will provide less than what is scheduled in the nearest tranche ($1.9bn),” Alexander Paraschiy of Concorde Capital said in a note. “We also see it unlikely that Ukraine will be able to get a second loan tranche from the EU this year. At the same time, we see it realistic for Ukraine to raise $0.5-1.0bn from the placement of Eurobonds this year. All in all, we expect Ukraine’s end-2017 reserves will reach $19.0-19.5bn.”

The NBU’s reserves outlook for 2018-2019 shows just how dependent Ukraine’s solvency is on continued cooperation with the IMF, and therefore on progress with IMF-sponsored reforms, Paraschiy emphasizes. If no new IMF tranches are forthcoming in 2018 or the investment climate and FDI growth fail to appear, Ukraine’s gross reserves may fall to $16bn as of end-2019, which will put the government under risk of default in 2020, when the government and state companies are due to repay about $6bn to external creditors.

 

 

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