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6.2 Debt
Ukraine’s state and state-guaranteed debt rose 3.5% m/m to $85.0bn as of June 30, the Finance Ministry reported on July 28. State foreign debt jumped 6.7% m/m to $42.0bn, while state domestic debt stayed flat at $33.1bn. State-guaranteed debt rose 2.7% m/m to $10.0bn.
In UAHterms, overall state debt increased 2.7% m/m in June to UAH2,269bn, or 57.1% of Ukraine’s GDP in 2019.
Ukraine’s foreign debt jump in June was fueled by the first IMF loan tranche of $2.1bn, as well as E.U. financing for €500mn. The lower growth of debt in UAHterms was due to a 0.4% hryvnia appreciation during the month.
We will see further growth of Ukraine’s foreign debt in July given the placement of international Eurobonds last week for $1.2bn (which is the net of newly issued bonds for $2.0bn and the buy back of notes maturing in 2021 and 2022 for total par value of $0.806bn).
At the same time, state domestic debt will have declined as the amount of local bonds redeemed during the month (UAH19.7bn and $755mn) exceeded the receipts from local bonds placed in July (UAH14.2bn and $608mn). With all these ins and outs, Ukraine's state debt will have increased by around $0.8bn, or 1% m/m in July.
We expect Ukraine's aggregate debt (state and state-guaranteed) will increase to $91.5bn by end-2020 (vs. $84.4bn in 2019).
7.0 FX
As foreign investors flee the bond market the hryvnia has lost just over 14% of its value this year. And there is no sign of a turn around in the bond market coming any time soon.
A 5% fall in the amount of remittances sent back by Ukrainians working abroad will also push the value of the currency down this year.
However, the MinFin successful success issue of a $2bn Eurobond in July will help support the currency for the meantime.
The new head of Ukraine’s central bank signaled yesterday that he favours lower interest rates and a weakened hryvnia. “The National Bank of Ukraine must press forward with cutting the key policy rate, which will eventually lead to cheaper loans for final consumers,” Kyrylo Shevchenko, the new governor said as he made his debut at the central bank, alongside President Zelenskiy.
Fresh from purging the leadership of the central bank, President Zelenskiy told business leaders July 7 that Ukraine’s exchange rate should match the rate in the national budget – 30 hryvnia to the dollar. That would represent a 11% devaluation from today’s National Bank of Ukraine rate -- 26.93 hryvnia to the dollar. Last December, the hryvnia strengthened to a recent peak of 23.22 to the dollar. Today’s rate is half of
45 UKRAINE Country Report August 2020 www.intellinews.com
