Ukraine's foreign reserves melt to six weeks' import cover

By bne IntelliNews December 5, 2014

bne IntelliNews -


Ukraine's foreign reserves fell to only $9.966bn in November, or six weeks' import cover, according to figures released by the National Bank of Ukraine (NBU) on December 5. Three months' import cover is regarded by the International Monetary Fund as the critical threshold for import cover, under which a country becomes vulnerable to a balance of payments crisis.  Only $9bn of Ukraine's reserves are in liquid foreign currency, with the rest in bullion, according to the NBU.

The drop of $2.6bn compared to the October figure derives mainly from the $1.45bn paid by Ukraine's energy company Naftogaz to Russia's Gazprom for payment arrears from 2013, under a trilateral agreement between Ukraine, Russia and the EU signed at the end of October, according to the NBU.

Another roughly $500m was given to Naftogaz to make advance payments to Gazprom for renewed gas supplies. Ukraine is set to pay another $376m in advance payments for gas imports on December 5 or December 6, government officials have said.

"$10bn is more or less still my best guess as to the country's external financing gap at present," says analyst Tim Ash of Standard Bank. "Ukraine is currently in a pretty critical condition - and desperately in need of IMF [International Monetary Fund] life support," he adds.

But it is unlikely to come, since an IMF mission left Kyiv before a new government could be appointed, and the newly-elected parliament has still not approved a budget for 2015. The IMF is not slated to return to Kyiv until mid January, according to reports.  

"It seems likely that reserves will drop below $9bn to year end, and/or the hryvnia will remain under extreme pressure," Ash concludes.   

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