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5.2.3​ Gross international reserves
Ukraine's international reserves declined by 7.8% month on month in March or $2.1bn, to $24.924bn, ​according to the National Bank of Ukraine (NBU)'s preliminary data.
"​After growing in January through February​, international reserves in March declined by 7.8% to return to a level close to where they started the year," the regulator said in a statement on April 7. "The decrease [...] was primarily driven by the NBU’s significant currency interventions, which were intended to smooth out excessive exchange rate fluctuations fuelled by speculative demand for foreign currency from businesses and households."
According to the NBU, the changes in international reserves during the month were driven by the following factors:
first, the NBU’s interventions in the interbank FX market. "In a frenzy of demand unleashed by the global spread of coronavirus [COVID-19], businesses and individuals in March rushed to buy foreign currency even as FX proceeds from exports continued to flow in at a steady rate. The NBU maintained an active presence in the interbank FX market to mitigate excessive exchange rate fluctuations and to keep depreciation and inflation expectations from spiralling out of control."
As a result of these interventions, the NBU in March generated around $2.2bn in net FX sales, meeting the demand from businesses and the public. FX market conditions went back to normal at the end of the month; so much so that the NBU resumed its interventions to buy foreign currency. Over the course of the month, the central bank sold a total $2.4bn and bought a total $264mn;
second, the government’s debt-servicing expenditures. Ukraine directed the equivalent of $1.1bn in total to service and repay its public and publicly guaranteed debt denominated in foreign currency. Of that, $537mn went to make repayments on Eurobonds, and $409mn went to meet the government’s and the NBU’s commitments to the International Monetary Fund (IMF).
The rest was used to service other commitments to foreign creditors and international financial institutions. The drawdown of international reserves was balanced out by new FX inflows.
Fitch expects international reserves to fall to $22.9 billion in 2020, ​down from $25.3 billion at the end of 2019, reflecting public debt repayments and weaker non-official capital inflows.
The net sale of foreign currency by the NBU in March amounted to $2.2bn.​ The central bank noted that the situation at the forex normalized at the end of the month, allowing the regulator to return to the purchase of foreign currency.
In March, the redemption and servicing of foreign currency debt during the month required $1.1bn. In particular, payments on international Eurobonds amounted to $537mn, while obligations to the IMF totalled $409mn. The rest of the payments involved obligations to other international creditors and financial institutions.
The NBU also reported a $17mn rise in the value of its securities portfolio. As of April 1, Ukraine’s gross reserves amounted to 3.7 months of imports, the NBU said.
30​ UKRAINE Country Report​ May 2020 ​ ​www.intellinews.com