Hryvnia Slumps; How Much Financing Does Ukraine Need?

The political turmoil in Ukraine is by no means at its end. Pro-Kiev (Western) and pro-Moscow protestors have confronted one another in Ukraine’s Russian-speaking Crimea region, igniting concerns that some parts of the country may secede.

Hryvnia slid past 10 per dollar for the first time today, a day after the central bank lowered its official exchange rate from 9.04 to 9.43 per dollar. The central bank’s foreign exchange reserves have fallen to just $15 billion, providing cover for less than two months of imports.

So far, the IMF, the US and the EU have all signaled willingness to provide assistance to Ukraine. But how much financing does the country need?

Capital Economics estimates Ukraine needs somewhere between $20-25 billion this year – and the bulk of which needs to be there before September:

In total, the government has $6.2bn of principal and interest payments on FX denominated debts over the rest of this year, of which $2.7bn are to the IMF. What’s more, the state-owned gas company, Naftogaz, has a $1.6bn Eurobond due in September and $1.6bn in arrears to Russia’s Gazprom. All told, the government will need access to $9.4bn of hard currency this year.

On top of this, Ukraine also needs to fund its current account deficit. Assuming Gazprom revokes an earlier deal to provide gas at lower prices, we estimate that Ukraine will run a current account deficit (excluding the government’s interest payments on FX debts) of around $13-14bn this year.

Vladimir Putin, having learned his lesson from the Orange Revolution, has been relatively numb about the recent events in Ukraine. But Russia’s presence can’t be ignored. Notice how important Russia is from the analysis above: Ukraine’s state-owned gas company has a $1.6 billion loan to repay to Russia’s Gazprom and Russia can worsen Ukraine’s current account by revoking an earlier deal to provide gas at lower prices.

It is therefore no surprise the support from the West is tentative and nominal. Here is New York Times:

The European Union’s foreign policy chief, Catherine Ashton, spent two days here promising unspecific support for a new Ukrainian government but urging it not to break close trading and cultural links with Russia. Ms. Ashton’s deft dance was inevitable — the European Union and the West are not willing or capable of bailing out Ukraine’s economy, especially if Moscow retaliates with new punitive tariffs, higher prices for natural gas and a cutoff of significant ties to Ukrainian factories and businesses.

While Ukraine itself is a small, frontier market with only $200 billion GDP, its political instability affects its Eastern Europe neighbors. This morning, the Market Vectors Russia ETF (RSX) lost 0.5%. The iShares MSCI Poland Capped ETF (EPOL) slumped 2%.

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    • I can see a positive outcome from the events in the Ukraine. First of all they need a stable government in the Ukraine, but I don't know what will happen at their scheduled elections in May. As of now, I have only heard of two people to run for president in the elections, but I have not heard of anyone campaining for president or any other office. How can anybody decide who should be President. Is this an exercise in futility? Where the Ukrainians go down the same path as before. I haven't seen any party platforms. There's alot of work to be done befor the May 25th elections. Also, I have not heard anything about the money flowing into the Ukrainian coffers. All I hear about is their debt. One of the big income in money should be the leasing of the Naval base at the Black Sea, by the Russians. That lease should be tied to the cot of gas that the Russians charge the Ukrainians. The price of gas goes up or there is a surcharge on gas, the price to lease the Naval Base should go up. I am sure that the US, EU, NATO may like to also lease space around the Black Sea too. I can see Big Business leasing land also, such as maybe Archer Daniels leasing farmland to further their cause to feed the world. I can see Monsanto or Dupont advancing their seed research and development there. Pepsi has already bought a juice factory in the Ukraine. These companies along with others, will probably help build the infrastructure there. But the main thing is they need a stable government that is pro business. And I have seen no indications of this happening.

    • To the point above, a pro business government will need to show their effort in fighting corruption beginning with the oligarchs and Yanukovich's son, who have illegitimately took over businesses and made hostile takeovers a common practice in the corporate sphere; and have also siphoned money for their own cause. Their companies, banks, and assets need to be seized and appropriated correctly to start a strong and legitimate economy under consistent government audits.

      The site below illustrates the assets the Ukrainian nation should address as soon as possible:

    • heee,,,hee....potato sack without bottom!...heee..hee..need more ?

    • @AAA: Interesting comment about the foreign big businesses!

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