After two weeks of fruitless talks with the visiting International Monetary Fund mission, it appears that Ukraine will have to continue repaying the $10.5 billion of foreign debt claims falling due this year on its own, at least for the time being.
Approximately
two-thirds of the amount coming due this year is to the international lender,
whose talks with Ukrainian authorities came to an end on April 10.
“The (IMF)
mission held productive discussions with the Ukrainian authorities on economic
policies that could be supported by a Stand-By Arrangement with the IMF,”
concluded Christopher Jarvis, IMF mission chief for Ukraine. “The key building
blocks of a new program would be measures to reduce Ukraine’s fiscal and
external current account deficits, and energy sector and banking reforms, in
order to create the conditions for sustained economic growth and job creation
in Ukraine.”
It was the IMF’s
second visit since January. The lender has been pressing Ukraine to pursue
unpopular policies at home in exchange for a $15 billion loan. They include
cutting household gas and heating subsidies to curb a growing budget deficit,
shoring up its banking sector, and letting Ukraine’s currency, the hryvnia,
devalue to realistic levels.
Ukraine has thus
far signed seven loan deals with the IMF.
The last loan
deal, also for $15 billion, was suspended in early 2011 because President
Viktor Yanukovych refused to adhere to the IMF’s conditions.
In 2012, Ukraine’s
budget deficit doubled to $6.7 billion or 3.8 percent of gross domestic
product.
To
meet debt obligations, Ukraine has turned to the more expensive bond market.
News reports on April 10 said Ukraine raised $1.25 billion in a Eurobond
placement at a 7.5 percent coupon rate that matures in 2023.
In a note to investors, Kyiv-based investment bank
Concorde Capital said the placement followed a November 10-year Eurobond placement with a 7.8 percent coupon rate, which is now trading
at a 7.16 percent yield.
“The placement is a positive
development as it ensures no deterioration in Ukraine’s international currency
reserves in the near future. Recall that Ukraine has to repay about $1.35
billion to the IMF within the next five weeks,” said Alexander Paraschiy of
Concorde Capital.
He continued: “On the flip
side, the placement is a signal that the Ukrainian government isn’t counting on
an IMF loan any time soon. In this context, the Eurobond placement was a smart
move, being carried out before the official results of the IMF visit were
announced. It worked out well…”
The investment banker added
that despite a smooth 2013 economy so far, “there was no fundamental
improvement in macroeconomic indicators, particularly the current account
deficit. Therefore, the foreign exchange market remains very fragile.”
Kyiv
Post editor Mark Rachkevych can be reached at [email protected].
