Ukraine’s Dwindling Coffers Are Making Central Bankers Fret
Ukraine’s government coffers are running low
and the central bank is worried.
The Finance Ministry’s account for paying pensions and
public-sector salaries has plunged to its lowest in more than
four years as budget revenue fails to meet the plan. Deficit
goals remain intact and financing should be on the way from
Eurobond sales and foreign aid. But help won’t arrive until
differences with the International Monetary Fund are settled.
“There’s no problem with the budget gap -- there’s a
problem with liquidity,” central bank Deputy Governor Dmytro
Sologub said in an interview. “The deficit may not exceed the
target, but there’ll be a shortfall and the government will need
money to cover it. The problem is that there are very few
sources of financing available.”
The answer lies in resuming Ukraine’s $17.5 billion
bailout, sealed in the wake of its second pro-European
revolution in a decade. While the next $1.9 billion tranche,
once approved, will all end up in foreign reserves, an agreement
with the Washington-based lender would unlock other aid and
allow the government to sell debt abroad.
Acting Finance Minister Oksana Markarova told Bloomberg
last month that a deal on the latest disbursement, postponed for
more than a year over reform hold-ups, is “very close.” And
there’s no immediate risk to Ukraine’s solvency. There’s the
equivalent of 20.9 billion hryvnia ($770 million) in FX
accounts, according to Markarova, who says “all payments are
being made on time.” Reserves, while dipping last month, are
almost $18 billion. Gross domestic product is growing.
The economy “is doing relatively well and recovering,”
according to Tomas Fiala, chief executive officer of investment
bank Dragon Capital in Kiev. But he said in an interview that
the recent deterioration in liquidity has become a concern.
“We’d want to see this resolved as soon as possible.”
The Finance Ministry raised more than 12 billion hryvnia
this month at two debt auctions and still plans to receive
dividend payments from state-owned energy company Naftogaz as
well as profits from the central bank. “Liquidity overall is
enough to finance the country’s needs and nothing is under
threat,” the ministry said in an emailed response to Bloomberg
The treasury-account balance had dwindled to 2 billion
hryvnia on Aug. 1, a level not seen since ex-President Viktor
Yanukovych’s regime crumbled. As well as the costly military
conflict with Russian-backed insurgents, privatization revenue
hasn’t materialized, tax receipts are lagging and hryvnia
strength lowered proceeds from customs duties.
The currency recently lost its crown as the world’s best
performer this year. Further IMF delays would risk it succumbing
to the chaos afflicting other emerging markets and derail plans
to sell as much as $2 billion of foreign debt.
“Even if we have the IMF’s help, little time remains by
year-end,” Oleg Churiy, another deputy central bank governor,
said in the same interview. “If there are any market
fluctuations in that period, it will be very difficult to raise
Sologub is also optimistic on the chances of getting the
IMF disbursement this year. But he has a warning.
“The central bank has a very tough position,” he said. “It
won’t finance the budget gap.”