Ukraine’s public debt increased due to PrivatBank – expert

A jump in public debt of Ukraine in December contributed to placing 115 billion of government bonds, including 107 billion to recapitalize PrivatBank, as well as attracting to the budget of 0.45 billion dollars from the placement of foreign bonds. This opinion was expressed by the chief economist of Dragon Capital Elena Belan.

“As a result of the nationalization of PrivatBank, the cost of which corresponded to 4.5% of GDP, the hryvnia debt component grew by 25% year-on-year, to 581 billion. In dollar terms, the growth of hryvnia debt was a more moderate +10% to 21.4 billion dollars due to the devaluation of the hryvnia (-12% yoy to 27.2 UAH/USD.)”, – said Belan.

It is estimated that the average cost of new foreign loans increased in 2016 to 5.6% per annum compared with 2.9% in 2015 because of decreased flows of official financing, while the increased placement of foreign bonds, which are more expensive source of funding (average rate of 7.1% per annum). At the same time, the average cost of borrowings in national currency was 9.1% per annum, significantly down from 13% in 2013-15.

“The reason for this was the use of an index of securities with a low yield for the recapitalization of PrivatBank. Thus, overall borrowing policy remained restrained, which should further reduce the effective interest rate (from 7.4% in 2016 and 10.9% at the peak in 2014) and contribute to debt sustainability in the medium term,” – said Belan.

The analyst predicts that the ratio of debt to GDP will decline slightly in 2017, up to 80%.

“This figure will continue to decline in the next five years to fall below the established IMF boundary level (71% of GDP), subject to stable economic growth, monetary stability and fiscal restraint. The key risk from the point of view of debt sustainability is the possible devaluation of the hryvnia,” – said Belan.

We will remind, according to the Finance Ministry, the state debt of Ukraine in December 2016 rose 5.1% ($3.4 billion) and amounted to 71 billion dollars. In annual terms, growth was 8.3%, or $5.5 billion. Thus, the public debt corresponded to 82% of estimated GDP in 2016, up c 79% at the end of 2015 (Ministry of Finance)