Ukraine’s gross international reserves rose 10.6% y/y in 2018, to $20.8bn – the highest level since October 2013, the National Bank of Ukraine (NBU) reported on January 8.

The reserves were bolstered after Ukraine’s receipt of an International Monetary Fund (IMF) tranche in December and the rapid issue of a international bond, as well as FX purchases by the NBU.

In 2018, the net purchase of foreign currency by the NBU amounted to $1.4bn, reports Concorde Capital.

Ukraine struck new deal with the IMF in October 2018, but saw its deal downgraded from an Extended Fund Facility (EFF) that runs over several years, to a Stand-By Agreement (SBA) that has to be renegotiated every year. The prospects of a new deal encouraged investors, which helped improve the foreign currency supply in the first half of the year, according to the NBU, while high agricultural export receipts provided foreign currency inflow in the second half of the year.

Financing from the IMF, the EU, and the World Bank to support macrofinancial stability and reforms in Ukraine amounted to $2.4bn in December. In addition, the government attracted $6.1bn on the domestic and international markets. At the same time, the government used $8.1bn from reserves in order to repay and service debt in foreign currency.

The NBU also reported on the increased value of its security portfolio by $230mn (adjusted to market value and the currency exchange rate).

In December alone, gross reserves increased $3.1bn, or 17.5% m/m to $20.8bn, driven by $2.4bn in international financing. In particular, an IMF loan tranche of $1.4bn was received under the new IMF SBA. In addition, connected financing from the World Bank and European Union added $1.0bn to reserves. Secondly, the government secured $540.8mn from placing local Eurobonds during December. Thirdly, the net purchase of foreign currency at the ForEx during December amounted to $338.5mn. Finally, the value of the NBU's security portfolio increased $147.0mn.

The December reserves outflow was related to repayment and debt servicing of $156.4mn (including $142.2mn of local Eurobonds). In addition, the December payments to the IMF totalled $158.2mn.

Evgeniya Akhtyrko of Concorde Capital commented: “The 2018 year-end gross reserves exceeded our expectations, mostly due to higher receipts from a local Eurobond placement and a foreign currency purchase at the ForEx. Reserves of $20.8bn provide a solid stockpile for increased debt servicing needs in 2019."

In 2019, Ukraine will need to find sources for replenishing its foreign reserves in order to prevent them from crossing the threshold equal to three months of imports. Ukraine will need to raise around $10bn in new foreign currency debt in order to keep its reserves at a decent level when payments are due in 2019, according to our estimate. This goal is not likely to be achieved without securing another tranche of the IMF stand-by loan.