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. Serhii Korablin, Director of the Department for Analysis and Forecasting of the Money Market, explained why issuance of foreign currency-denominated T-bills did not pose additional risks to the Ukrainian economy.
“The economy or businesses are exposed to risks all the time, no matter whether these liabilities are denominated in national currency, dollars or euros. If we ask whether the risk would disappear if the Ministry of Finance raised funds in the external markets, I can say with certainty that the answer is no. Risks are inevitable. As for risk assessment and management, that is a different story. It is a fundamental issue.
According to him, any economic activity involves risk taking. When it comes to the cost of borrowing, it should be noted that the Ministry of Finance issued foreign currency-denominated T-bills for the first time last December, with the cost of borrowing standing at 8.9% per annum.
“If we look at the six-month average cost of borrowing, we can see that it has remained unchanged, standing at 8.9%. However, the maturity of T-bills has increased twice. Therefore, possible risks have been reduced at least twice,” said Director of the Department for Analysis and Forecasting of the Money Market.
Mr. Serhii Korablin reminded that the problems we saw in the stock market of Ukraine 15 years ago were related to the short-term maturity of T-bills rather than national currency denomination of T-bill issues. There were T-bills with a six-month maturity, three-month maturity and one-month maturity. Finally, it led to a failure of a T-bill issuer to fulfill payment obligations to T-bill holders.
“Fortunately, we do not face this problem today. The Ministry of Finance continues to raise funds by issuing foreign currency-denominated T-bills with a one-year maturity, two-year maturity and three-year maturity,” added Mr. Serhii Korablin.
Mr. Oleksandr Dubikhvist, Director of the NBU Department of Foreign Exchange Reserve Management and Open Market Transactions, explained the reasons why the Ministry of Finance had only recently started issuing these instruments and had not resorted to this measure two or three years ago.
Since the beginning of this year, UAH 16 billion worth of foreign currency loans have been repaid and UAH 10 billion worth of deposits have been placed with banks. Foreign currency lending to households is prohibited. Foreign exchange is not in demand with legal entities as they need hryvnias to carry out business transactions. Therefore, banks face a dilemma in deciding whether to stop attracting foreign currency deposits at all, or look for ways to allocate these deposits,” said Mr. Oleksandr Dubikhvist.
According to him, the new instrument introduced by the Ministry of Finance enabled banks and people to invest their funds therein. It is of vital importance for Ukraine as its stock market is still poorly developed.
“Of course, we need to develop the stock market, offer new instruments to households. Only one instrument such as hryvnia-denominated or dollar-denominated deposit is currently available to households. According to statistics, dollar-denominated deposits account for 40% of total deposit, whereas hryvnia-denominated deposits make up the remaining 60%. We have introduced a new instrument – T-bills denominated in dollars and hryvnias. An investor will have a choice of whether to go to the bank, or invest money in securities issued by the government,” said Mr. Oleksandr Dubikhvist.