Page 9 - UKRRptAug22

(NBU) also devalued the currency on July 21 from around UAH28 to the dollar to UAH36, a drop of 25%, to bring the official rate in line with the cash rate on the street. But the currency immediately fell further to UAH41 and will continue to slide. (chart) The government is running a deficit of around $5bn a month, which is being financed almost entirely by the NBU’s printing presses. This is not sustainable. The Western donors have sent a total of $12.3bn since the start of the war five months ago – about $2.75bn per month – but this is insufficient to cover the funding gap. The EU and the US have promised another $16bn but the distribution of this money has been dogged by bureaucratic delays, and in the meantime the economy is in a slow crash.
The shortfall is already having an impact on the NBU’s reserves, which have fallen by about $5bn in the last two months, further undermining the value of the hryvnia. And the government has ordered all the state-owned companies to delay their debt payments to “preserve cash.” As a result, Naftogaz defaulted on a $335mn bond, despite having the money to hand and management wanting to pay to preserve the company's credit history.
Grain exports resumed on August 1, which will bring some badly needed revenues, but as grain shipments are only expected to earn some $1bn a month, the numbers still don’t add up. Kyiv got some relief as the Paris Club of sovereign creditors agreed to delay all payments on sovereign debt for at least one year, but the private investors are less enthusiastic. The holders of Naftogaz’s bond were advised to reject the company’s request to delay redemptions and coupon payments as the company was “still a going concern” and had the cash to pay on its balance sheet.
The government is in a very difficult place now. With much of its manufacturing industry and infrastructure damaged or destroyed and with insufficient income to cover the budget, it is in a poor position to sustain what increasingly looks like a long fight. Kyiv is now entirely dependent on the West's supplies, especially materiel, but the West is running down its stocks of ammunition and its manufacturing sector is not able to quickly produce more. The US in particular has compensated by sending more powerful weapons, such as the US M142 High Mobility Artillery Rocket Systems (HIMARS), that have had a devastating effect on Russian forces, but these are not game-changers, as the Russian military machine keeps grinding on.
In two ominous signs in July the Kremlin cancelled the second Russia-Africa Summit, due to be held in November, and at the end of July Kyiv ordered the evacuation of the parts of the Donetsk region it still controls, nominally to avoid problems in the winter. Both suggest that the fighting will continue into November and possibly beyond and that Russia continues to make steady, albeit very slow, progress in its campaign to take control over the whole of the greater Donbas region.
The government has limited capacity to raise resources to cover its funding gap via taxes (the economy is weak) or debt (international
9 UKRAINE Country Report XXXX 2018 www.intellinews.com