Faced with tougher access to global financial markets, Ukraine is trying to replace external borrowings by domestic ones. A statement to this effect was made by Mr. Oleksandr Dubikhvist, Director of the NBU Department of Foreign Exchange Reserve Management and Open Market Transactions, during the press club meeting on “Public finances in Ukraine: how serious is the risk of default on debt?”, which was held on 12 July 2012.
Mr. Oleksandr Dubikhvist drew attention to the fact that, in spite of an increase in the amount of money available in the global economy, the number of reliable issuers is decreasing and these are countries with high credit ratings.
“For example, the German government bonds are sold at a negative yield, which implies that people who invest money and provide money to Germany, have to pay additional charges for this. The reason for this is this is that people trust neither hedge funds nor banks, but are willing to invest in government debt securities. We can also see that many countries, including European countries, are facing borrowing problems. The countries with low credit ratings suffer the most. I believe we are in the same boat with all the countries trying to raise capital from foreign markets,” said Mr. Oleksandr Dubikhvist.
According to him, the Ministry of Finance of Ukraine is focused on raising funds in the domestic market. As of today, approximately USD 2.5 billion and EUR 300 million has been raised in the domestic market. Therefore, external borrowings are being replaced by domestic ones.
“If we have the opportunity today to pay the domestic investor, it will be a better choice. In addition, the situation in the foreign exchange market is better than it was last year. The negative balance of selling cash foreign exchange to households totaled USD 13.5 billion last year. These funds were used to repay loans (UAH 30 billion in the equivalent). Simultaneously, foreign exchange deposits have increased by UAH 36 billion. Overall, this accounts for USD 8.2 billion, with over USD 5 billion remaining outside the banking system,” said the Director of the Department of Foreign Exchange Reserve Management and Open Market Transactions.
Mr. Oleksandr Dubikhvist also drew attention to the fact that foreign exchange loans shrank by USD 2 billion, whereas foreign exchange deposits climbed by USD 1.2 billion. Therefore, the banking system received USD 3.2 billion as loan repayments and deposits attracted. The negative balance of selling cash foreign exchange to households totaled USD 3 billion.
“Households bought as much foreign exchange as they returned to banks, leaving nothing outside the banking system. It is viewed as a good sign,” said Mr. Oleksandr Dubikhvist.
The Ministry of Finance intends to continue raising funds in the domestic market and offers an instrument such as T-bills intended for households. Mr. Oleksandr Dubikhvist feels confident that the measures taken by the Ministry of Finance should be welcomed.