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Ukraine’s International Reserves Increase to a Seven-Year High in 2019

Ukraine’s International Reserves Increase to a Seven-Year High in 2019

In 2019, international reserves rose by 22% and as of 1 January 2020 came in at USD 25.3 billion (in the equivalent). This amount not only exceeded the latest forecast for reserves (USD 23 billion in the equivalent) published by the NBU in its October 2019 Inflation Report, but also reached a seven-year high - reserves were higher only back in December 2012.

The NBU was able to increase its international reserves by a total of USD 4.5 billion over the year thanks to persisting favorable conditions on the FX market, which have been driven by a continued acceleration in economic growth and steady inflows of foreign capital into the country. International reserves grew in a year when both parliamentary and presidential elections were held and public debt repayments peaked, which is further proof of the strengthening of Ukraine’s macrofinancial stability.

Over the year, the supply of foreign currency on the interbank market significantly exceeded demand. The large supply of foreign currency was generated by Ukrainian exporting companies, mainly agricultural companies, which increased sales even though there was some deterioration in international terms of trade. International investors, who sold USD 4.3 billion to purchase hryvnia treasury bills and bonds, also played an important role. In addition, state-owned and privately owned companies also actively attracted external financing. Meanwhile, importers’ demand for foreign currency was moderate, due among other things to a fall in global energy prices. The amount of dividends repatriated by businesses was also smaller.

The NBU, guided by its Foreign Exchange Intervention Strategy, purchased the excess foreign currency to replenish international reserves. This, however, did not counteract market trends towards a stronger hryvnia. Over the year, the NBU was a net purchaser of USD 7.9 billion - the largest figure over the last 14 years.

December saw the largest rise in international reserves, on the back of very low repayments of external debt and an increase in the foreign currency supply on the interbank FX market by 15.4%, or USD 3.3705 billion. In December, international reserves were affected by the following factors:

  • First, the NBU’s interventions on the interbank FX market. Active FX sales by the private sector of the economy, state-owned companies and foreign investors enabled the NBU to replenish international reserves by USD 2.9333 billion (net FX purchase). In particular, the NBU purchased USD 1.7433 billion at a single exchange rate, USD 510 million by choosing the best exchange rate, and USD 730 billion via auctions. In order to prevent a depreciation of the hryvnia, the NBU sold USD 50 billion at a single exchange rate during one business day.
  • Second, the government’s operations related to public debt management. Overall, the government spent USD 220.3 million (in the equivalent) on servicing and repaying public debt denominated in foreign currency. Of that amount, USD 181.3 million was paid to service and repay hryvnia-denominated treasury bills and bonds, while the rest was paid to discharge the country’s other obligations to foreign lenders and international financial institutions. These payments were offset by the government’s receipt of USD 514 million, including USD 259 million and EUR 198 million raised through the placement of hryvnia-denominated treasury bills and bonds.
  • Third, the revaluation of financial instruments (due to changes in their market value and changes in the exchange rate of the hryvnia against foreign currencies). Last month, the value of these financial instruments increased by USD 143.6 million (in the equivalent).

Currently, international reserves could pay for 3.9 months of future imports. This is sufficient for Ukraine to discharge its obligations and for the government and the NBU to conduct their current operations.

Data on international reserves and foreign currency liquidity are compiled and distributed on a monthly basis:

  • for preliminary data, no later than on the seventh day after the reporting month ends
  • for revised data, no later than on the 21st day after the reporting month ends.

Revised data are available here.

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