Page 43 - bne_December 2018_20181207

bne December 2018 Eastern Europe I 43
Empty seats
Emigration is a problem for Ukraine, which badly needs to rebuild its own economy. With the brightest and hard- est working members of the workforce overseas, that will hamper the economic recovery that has begun in Ukraine.
It is hard to say exactly how big an impact labour migration will have on Ukraine’s growth or to what extent it
is already affecting growth, but the Ukrainian economy is already perform- ing under par.
Sergei Nikolaychuk, the director of the NBU’s Department of Monetary Policy and Economic Analysis, said in February that work migration creates problems for the local labour market and is likely to influence GDP for the next few years. He believes that the drop in the workforce due to emigration led to a 5-8% loss in the number of employees in 2017. Previ- ously the government projected a loss of 3-4%, so the correction is significant.
Coming out of such a deep depression in 2015 the bounce back should be signifi- cant – Russia’s economic growth hit 10% in 2000 following its own crisis in 1998 in a record that has yet to be beaten – but Ukraine’s growth in the last three years has been lacklustre.
Third quarter GDP growth in Ukraine actually slowed to 3.1% in annual terms, down from 3.8% in the second quarter, according to the NBU. And that was despite remittances arriving from work- ers abroad coming in at almost $1bn a month in the period, about 20% higher than the previous year’s levels.
Moreover, the economic outlook is deteriorating, although other factors are also to blame: global growth is slow- ing, caused in part by the international trade wars and closer to home a marked slowdown is expected in Europe, led by Germany, where economic growth is expected to stall completely this year.
The IMF downgraded its outlook for Ukrainian GDP growth in 2019-2020
in October, the fund said in its World Economic Outlook report, lowering its estimate for the growth in 2019 to 2.7% from 3.3% projected in April. In addi- tion, the IMF worsened the forecast for GDP growth in 2020 to 3.4% from 4%, but improved this figure for 2018, to 3.5% from 3.2%.
Home alone
While the money they send home is easy to measure, it is not entirely clear how many Ukrainians have left the country, but it is clear a lot of them have gone to
Poland. According to the latest Interna- tional Migration Outlook 2018, pub- lished annually by the OECD, in 2017 Poland became a global leader in the inflow of foreign, seasonal, short-term workforces, according to Jaroszewicz.
“This is unusual because Poland has never been a country of immigration, and indeed still remains a country of emigration,” she adds.
According to Poland’s Ministry of Family, Labour and Social Policy, the number
of Ukrainian citizens who had obtained valid declarations of intent to employ a foreigner by December 31, 2017 reached 517,000 people, while another 208,000 Ukrainians had a work permit.
“To this number should be added the group of around 100,000 Ukrainian citizens who are permanently resident in Poland and do not need a work permit, or who are studying or living in Poland for reasons other than work. In total, this gives a number of around 900,000 migrants from Ukraine resident in Poland at the end of 2017. By the end of 2018, these numbers are likely to be lower due to the introduction of new rules for the employment of foreigners,” says Jarosze- wicz. Other estimates put the total Ukrai- nian population in Poland at 2mn.
COMMENT: Following the $2bn Eurobond issue in October, funding Ukraine’s debt repayments in 1H19 is now likely
Taras Kotovych of ICU in Kyiv
Last week, the Ministry of Finance of Ukraine successfully placed $2bn of Eurobonds. As a result, the government should have enough FX funds to repay external debt through May 2019, as we expect the IMF Execu- tive Board to approve the new stand-by agreement with Ukraine this December and IMF-conditioned tranche from the
EU and borrowings under the World Bank guarantee will be received.
The yields of the new Eurobonds are slightly higher than the sovereign yield curve, which makes them attractive for investors. Due to political risks, Ukraine's sovereign curve justifiably should remain above those of peers
with ratings B/B-, at least until 2020.
New bond placement was successful. Initial guidance was announced at 9.25% for five-year notes and 10% for the 10-years. At the end of the pricing procedures, two Eurobond issues were finally announced: $0.75bn at a 9% yield (coupon rate will be 8.994%)
www.bne.eu