Press Archive
MinFin Targeting Central Budget Deficit at 4.0% of GDP for 2014
We believe that the revised central budget will include comprehensive economic reforms promised by the new authorities.
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Klitschko Leads Opposition Candidates in Presidential Poll
UDAR party leader Vitaliy Klitschko holds a large lead over all other potential opposition presidential candidates, with double the support of his nearest rival, a new poll by the “Rating” agency published on Wednesday (Dec 25) indicated.
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Yanukovych Says He Expects IMF Deal Without Gas Price Hike
President Viktor Yanukovych said that he expects the IMF to waive its long-standing requirement that the Ukrainian government reduce domestic subsidies for natural gas tariffs, in an interview conducted with Bloomberg News in New York on Monday (Sept 26).
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Akhmetov Acquires UkrTelecom at Undisclosed Price
UkrTelecom, Ukraine’s dominant fixed line telephone operator, was acquired by System Capital Management (SCM), the holding company of industrialist Rinat Ahmetov, Interfax reported on Wednesday (Jun 5) citing SCM’s press office. SCM signed an agreement with Austrian group EPIC to buy a 100% stake in UA Тelecominvest Limited (Cyprus) the holder of a second Ukraine-registered intermediary which owns some 93% of UkrTelecom. The value of the deal, nor any additional information, were provided. EPIC, the current owner of UkrTelecom, bought its stake for UAH 10.3bn (USD 1.30bn) from the State Property Fund in May 2011.
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Ukraine’s Public Debt to GDP Targeted at 38.5% in 2013
Ukraine’s public debt to GDP ratio is targeted at 38.5% in 2013, according to a government forecast which was published in the Finance Ministry’s prospectus for sovereign Eurobonds issued earlier this month. In the report, the government said that over 2012, the country’s public debt rose by 8.9% to USD 64.5bn.
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IMF Says Ukraine Gas Subsidies Cost 5% of GDP Per Year
The International Monetary Fund published a report on its website on Monday (Oct 15) detailing the costs of Ukraine’s “household” natural gas subsidies. Among other things, the 23-page report estimates the real losses to Ukraine’s economy due to the subsidized pricing regime at at 5% of GDP per year, which equates to about USD 9bn. The report also presents a detailed model of the economic effects of a gradual rise in gas tariffs, and concludes that such a rise would have few negative consequences for the general population if accompanied by targeted support for low-income households.
Commentary
We fully agree with the IMF’s estimate regarding the annual 5% of GDP lost due to subsidized natural gas pricing. Other research estimates have erroneously, in our view, focused only on the nominal bottom line loss posted by state gas monopoly Naftogaz, which has been about 1%-1.5% of GDP in the past two years. In addition to leaving the figure vulnerable to accounting manipulations, this method ignores the large profits which would be achieved if Naftogaz were to sell all of Ukraine’s domestic natural gas output at market prices.
We see the timing of the IMF’s report as no accident, given that the Ukrainian government will have an important choice to make immediately following the Oct 28 parliamentary election on whether or not to raise gas tariffs and thus resume the country’s stalled IMF loan program.
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12-Month Inflation at Zero After August Data
The State Statistics Committee said that Ukraine’s 12-month inflation is now at exactly zero, according to data reported on Thursday (Sept 6), while the producer price index has risen by a tame 1.4% YoY in 8M11. In month-on-month terms, the CPI fell 0.3%, while the PPI climbed 0.5%.
COMMENTARY
Headline inflation has now been at zero or slightly below (it was -0.1% after July’s data) since the spring. August was the fourth consecutive month in which UkrStat registered month-on-month defl ation. Year-to-date, the CPI declined 0.4%. However, as we have stated before, we believe that UkrStat’s CPI basket structure understates actual consumer inflation in the country.
The main statistical reason for the low inflation was a 1.9% YtD price contraction in the food sector. Among particular segments, vegetable prices have fallen 16.4% YtD and shell egg prices dropped 37.8% YtD, according to UkrStat data. Prices for utility services demonstrated an increase, rising 0.6% YtD.
In the PPI components, the extraction sector’s prices declined 4.4% YtD, while in the machinery sector’s prices, there was a rise of 3.4% YtD. Historically, at the end of the summer season, consumer inflation picks up substantially, and we believe that this year will be no exception. Most estimates put FY12 infl ation in the 5-7% range.
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Naftogaz to Receive USD 700,000 Grant from US Government
The US government’s Trade & Development Agency has extended a grant to the UkrGazVydobuvannya gas extraction company to fund a feasibility study on increasing production at the Kotelevske field, which straddles Kharkiv and Poltava oblasts. UkrGazVydobuvannya, by far Ukraine’s largest gas extractor with annual output of around 15bn cubic meters, is an arm of state energy monopoly Naftogaz. The amount of the grant is USD 720,000.
Commentary
We assume that the grant is a step toward helping US energy majors get a foot in the door in gas extraction in the Ukrainian heartland, as foreign investment will ultimately be required to lift production. Ukraine has long suffered from declining natural gas extraction due to subsidized domestic pricing and the resulting lack of investment. The news follows an announcement earlier this week that Shell and ExxonMobil won a bid from Ukraine’s government for Black Sea offshore oil&gas exploration over Russia’s LukOil.
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Headline Inflation Still in Negative Territory at -0.1%
The State Statistics Committee reported yesterday (Aug 6) that consumer prices fell by 0.2% MoM in July, putting headline 12-month inflation at -0.1%. According to Ukrstat, consumer prices are nearly unchanged from the beginning of the year, having edged down by 0.1%. The official statistics say that consumer prices have been either falling or flat for the last 15 months.
Commentary
Headline inflation rose from -1.4% to -0.1% after a large deflation in July 2011 rolled off the calculation. We note that UkrStat’s CPI basket is overweighted in favor of agricultural products, and that therefore, actual CPI headline inflation is probably in positive territory, though not high. After a long period of very low inflation, we expect prices to begin rising in the coming months, partly due to seasonal factors and partly due to increases in the money supply by the National Bank of Ukraine.
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Current Account Deficit Running at 3.8% of Estimated GDP
The NBU reported on Tuesday (Jun 26) that Ukraine’s current account deficit was USD 2.06bn in 5M12, compared to USD 2.62bn in the same period of 2011. A small net inflow in loans and bonds was registered which amounted to USD 166mn, compared to net outflow of USD 422mn in the same period of 2011. Short-term net loan inflows totaled USD 918mn in 5M12 while in 5M11 there was a net outflow of USD 457mn on this item. On the The merchandise trade deficit expanded from USD 2.9bn in 5M11 to USD 3.6bn in 5M12. The services trade surplus barely improved in this period, coming in essentially unchanged year-on-year at USD 1.92bn. The reported current account deficit amounts to 3.8% of our estimated GDP of 5M12.
Commentary
Despite the fact that current account did not worsen year-on-year, there are disturbing signs that Ukraine’s balance of payments is being supported by short-term capital inflows in the form of short-term loans. Most of these are being used to finance foreign exchange transactions. On the positive side, figures in June are likely to show a strong net capital inflow due to European football championship revenues. The higher trade deficit resulted from purchases of investment equipment as fixed investment boomed in 1Q12. We expect the trade balance to improve in 2H12 as the momentum of consumer demand slows down and the steel sector, which showed almost USD 1bn lower revenues YoY on global price dynamics, will rebound. Given these considerations, we retain our forecast of a CA deficit of 2.5% of GDP for FY12, or USD 4.9bn (We note that Ukraine’s full-year GDP is rather heavily weighted toward the second half of the year).
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