Ukraine debt declines to 89% of GDP on hryvnia strengthening

Макроэкономика 28.05.2015 By the end of April, Ukraine’s state debt in hryvnias was reported at UAH 1.4 trln, a 7.0% decrease from the previous month, according to Finance Ministry data released on May 27. Its internal and external debt (in UAH terms) shrunk by 2.2% and 9.5% through the month, respectively. In USD terms, public debt increased 3.6% m/m to USD 67.3 bln. External debt inched up by 0.8% (USD 322 mln), mainly due to a EUR 250 mln loan from the EU. Internal debt grew 8.9% (USD 2.0 bln) due to hryvnia strengthening (to UAH 21.05/USD in April, from UAH 23.44/USD in March). The share of external debt by the end of April decreased to 63.7% compared to 65.5% in the prior month. Alexander Paraschiy: By the end of April, state debt declined to 89% of GDP (from nearly 95% of GDP in March), according to our estimates. Hryvnia strengthening was the main reason for such an improvement. Reduced Finance Ministry activity with new local bonds issues also played an important role as the stock of outstanding state bonds dropped by UAH 10.8 bln in April. Starting May, we anticipate the declining trend on debt to change course. Firstly, in May, the hryvnia exchange rate was almost flat, which means there was no exchange rate effect on debt this month. Secondly, Ukraine has placed USD 1 bln in Eurobonds under U.S. guarantees in what will increase external debt somewhat. Thirdly, in June we anticipate EUR 600 mln from the EU arriving under a macro-financial assistance program. Also the IMF might provide USD 1.67 bln in June as a second wire under the extended funds facility program. All in all, counting the projected loans from the IMF, World Bank, EU and Eurobonds placement, which are expected to be near USD 6.0 bln higher than scheduled sovereign payments, we expect the state debt to approach a level of UAH 1.7 trln (USD 76.1 bln), or 91.7% of GDP, by the end of the year.