Cash, just in time for elections
The situation in Ukraine has been intense in recent weeks. Residential gas prices have finally been raised by 23.5%, and the IMF immediately announced a staff-level agreement on a new 14-month Standby arrangement—a credit line worth up to $3.9 billion. This positive signal gave the green light for $2 billion Eurobond placement, and more credit from the EU and the World Bank. The IMF deal still must be approved by the IMF Executive Board, after Ukraine’s 2019 budget is passed. But the news has already improved sentiment, and has removed concerns about sliding gross international reserves, for now. Hopefully, the placement of Eurobonds ahead of the finalized IMF deal won’t become a repeat of last year’s situation, when Ukraine’s leadership dropped its commitments as soon as the Eurobond funds arrived.
The 2019 election campaign is already in full swing. Yulia Tymoshenko continues to lead in the polls, but with well below 20%. Her supporters firmly believe she can save the country. For those who dismiss Tymoshenko, the choice is quite complicated. The positions of other candidates are fluctuating, which means that people are a bit lost between politicians who all sound similar, and new faces from show business. Anatoliy Hrytsenko, seen as a potential alternative to Tymoshenko and President Petro Poroshenko, has slipped over the last few months to third and even fourth place. Some voters have shifted their support to comedian Volodymyr Zelenskiy, in second place in several October polls, though Poroshenko is in second place in most. We expect a final, second-round fight between Poroshenko and Tymoshenko.
Moscow published a sanctions list of 322 Ukrainian citizens and 68 businesses. This list was perceived as entertainment rather than a threat, as it was full of inconsistencies: supporters of Russki Mir (Russian World) were included, while some persistent fighters of Russian aggression were left out. But the main message was the inclusion of Tymoshenko and the exclusion of Poroshenko, and Premier Volodymyr Groisman. This was seen as the Kremlin’s bid to help Tymoshenko win support among Ukrainians, by giving her some anti-Russian credibility.
Economic statistics offer a mixed picture. The hryvnia has stabilized at close to UAH 28/dollar, and shows no sign of further depreciation. The CAD has been expanding fast, driven by strong import growth. By September, the CAD had reached $3.9 billion, beating our yearend forecast. Consumer inflation remains strong at 1.7% m/m, pushed by food and fuel prices. Still, the NBU decided to keep the prime rate unchanged at 18%, inspired by the good news from the IMF. Industrial output slipped 1.3% y/y in September on the back of metals, which slipped -1.3% y/y due to renovations of steel production facilities. Budget revenues are soaring, rising 18.7% y/y in September. However, payroll tax collections are somewhat behind the +35% target for the year, at +26.8% y/y by September. We expect the Pension Fund deficit to add up to 0.4% of GDP in extra deficit in 2018.
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