Ukraine debt declines 0.3% m/m in October

Макроэкономика 28.11.2013 In October, Ukraine’s public debt decreased 0.3% m/m (USD 223 mln) to USD 68.8 bln, according to Finance Ministry data released on November 27. External debt shortened by USD 107 mln (-0.3% m/m) while internal debt decreased by USD 116 mln (-0.4% m/m). The share of internal debt remained flat vs. September, accounting for 47.4% of public debt. Alexander Paraschiy: Repayments of internal bonds and changes in the Special Drawing Rights exchange rate was the main reason for a slight reduction in October public debt. The decline was truly bigger due to a USD 640 mln redemption to the IMF on October 30; however, MinFin traditionally reflects end-of-the-month IMF payments in the next reporting period. The contraction in domestic debt contrasts with our expectations. Due to a budget revenue shortfall, we anticipated MinFin to borrow heavily to cover the fiscal gap. However, it looks like the fear of currency devaluation has taken precedent over the fear of missing social payments. The authorities hit the brakes between August and October on active state bond sales, instead relying heavily on direct wires from the NBU (advance NBU profit transfers). In November, active bond placements resumed (UAH 9.8 bln was attracted by November 27), but two-thirds of the placements were in USD-denominated securities (USD 822 mln), which again indicates that the main focus is on the exchange rate. We are keeping our state debt forecast at 39.5% of GDP by the end of 2013. It’s traditional for state authorities to arrange the largest public arrear payments on Christmas eve, which means that in December we should expect active borrowing on the internal market.