Ukraine Foreign Reserves Reach USD 29bn After Rising 15% in 2020

January 11, 2021

The Ukrainian National Bank’s (NBU) foreign reserves increased by 15.1% YoY to USD 29.1bn in 2020, according to official NBU data. The reserves reached an 8-year high and now cover 4.8 months of the country’s future imports, compared to the minimum 3 months of imports recommended by economic theory. The NBU’s net forex purchases on the interbank market amounted to USD 1.0bn in 2020. Meanwhile, in December alone, the reserves grew by USD 3.0bn as a result of significant hard currency inflows to the government from borrowings. The government received an equivalent of USD 1.0bn from the placement of domestic USD-denominated bonds, and USD 670mn from Eurobond placements. Currently, the NBU reserves consist of USD 23.7bn of securities with credit ratings between AAA and A, USD 3.8bn of current accounts and deposits, and USD 1.6bn of monetary gold. In terms of the currency breakdown, the US dollar represents 77% of Ukraine’s foreign reserves.   

The notable rise in Ukraine’s forex reserves in 2020 occurred simultaneously with the national currency moving in the opposite direction; the hryvnia devalued by 16% against the dollar last year. The currency took a hit from the COVID-related drop in economic activity and the demand for foreign currency by the government and businesses to service external debt. Although official statistics state that Ukraine’s current account (C/A) balance improved to a surplus of USD 6.8bn in 11M20 compared to the C/A deficit of USD 6.2bn in 11M19, the balance of payment (BoP) turned to a deficit of USD 848mn compared to the BoP surplus of USD 2.7bn in 11M19.
Taking into account that Ukraine’s overall spending on external debt servicing and repayment is estimated at USD 5.9bn in 2021, it appears that the current level of reserves should allow smooth servicing of sovereign Eurobonds, the biannual coupon payments on which are due each March and September. On the other hand, the projected national budget deficit of 5.5% of GDP for this year will put pressure on the government to raise more debt, including USD/EUR-denominated debt, and this means that in case of worsening market conditions, Ukraine would need to tap its reserves instead of finding sources to refinance the scheduled debt redemptions.

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