Olesia Safronova (UNIAN)
Ukrainian
authorities have spoken with the Western creditors, received the money needed
for reform and announced yet another spike in tariffs for utility services -
these are the main economic news of the past week.
The main economic news of last week came to Ukraine
from across the ocean. Ukrainian Prime Minister paid his first official visit
to the United States. It was no accident that Washington became the first
foreign capital to be visited by Groysman in his new office, as head of the
Ukrainian Cabinet. A key purpose of the trip was, on the one hand, the
presentation of the new Ukrainian Government and its first steps in
implementing reforms, on the other – the search for new sources of financing
these reforms. It is clear that Ukraine won’t cope with the overhaul without
external support.
Ukraine’s internationally
recognized economic potential, much of which has long "settled" in
the shell companies in offshore jurisdictions, requires external stimuli for
development, both in the form of credit and investment. In this context, the
United States is not just the lender and investor. This is the first economy in
the world, which for the past two years has poured into Ukraine more than $4
billion in direct financial assistance by the U.S. Government alone. In recent
days, the amount grew by another $220 million. U.S. Vice President Joe Biden in
a meeting with Volodymyr Groysman announced the allocation of this money on
condition it is used to reform the energy sector and the judiciary, as well as
decentralization projects.
The corporate sector also expects new spark in
Ukrainian-American cooperation. In particular, at the meeting with the U.S.
businessmen, Groysman has pledged to create an Agency for Support of
Investment, presented plans of deregulation and reform of state-owned
companies’ management, and urged the U.S. business community to look into the
Ukrainian state assets which are to be sold. The first in line is the Odesa
Portside Chemical Plant.
Last week, the State Property Fund announced the date
of sale of the enterprise – July 26. Then goes Centrenergo and a number of
other energy companies. "Ukraine has very good prospects of attracting
U.S. investments,” said Groysman following the meeting. What is needed from us?
To remove artificial bureaucratic barriers, stop the practice of extortion by
officials and regulatory authorities, create transparent rules of the game,
which would the same for everyone." We want to believe that the Americans
were satisfied with such rhetoric, and many large companies in the foreseeable
future will replace their policy of waiting for a policy of active investment
in Ukraine.
A good example would be the realization of a large
Ukrainian-American investment project worth almost $300 million with the
U.S.-based agri giant Bunge. Last week, the company has commissioned a new
oilseed production and transshipment terminal worth $180 million in the
territory of the Sea Commercial Port of Mykolaiv, having invited to the opening
ceremony President of Ukraine Petro Poroshenko. This is the second infrastructure
project in recent months implemented by the Americans in the Ukrainian
seaports. A year ago, the U.S.-based Cargill engaged in implementing a plan to
build a large grain terminal worth about $ 100 million in the territory of
Yuzhniy Port. The
construction work is already underway.
Green light from creditors
Some good
news last week also came from Ukraine’s key creditors – the World Bank and the
International Monetary Fund. The delegation of the Ukrainian government visited
both institutions while in Washington and, judging by the comments of
participants to these meetings, the parties were mutually satisfied. In
particular, the IMF, after talks with Finance Minister Oleksandr Danylyuk,
confirmed that a Board meeting on the allocation for Ukraine of the third
tranche of the loan in a four-year reform program is scheduled for July.
The
Fund assures that there is no reason to talk about postponement of the meeting
or reviewing the size of the loan tranche of $1.7 billion. IMF spokesman Jerry
Rice has told UNIAN though that the Fund was also waiting for Ukraine to
implement reforms, especially in the fight against corruption and maintaining
macroeconomic stability. At this, he elaborated that Kyiv and Washington at the
moment are discussing a memorandum on the second review of the reform program.
To put it simply, they discuss the goals achieved and future challenges. The
final approval and the signing of the document should take place in the near
future. Finances were also discussed at the meeting between Vlodymyr Groysman
and Managing Director and Chief Operating Officer of the World Bank Sri Mulyani
Indrawati.
"The
good news: The World Bank stands ready to work with us to review the
effectiveness of programs that on which the money has already been spent and to
provide an additional $1 billion for their expansion next year," Groysman
wrote on Facebook. He also said that the World Bank was ready to consult the
Ukrainian authorities on the issue of drafting a strategy of development of
Ukraine’s road sector. Ukraine has never had a document, stipulating long-term
plans of the authorities in the field of road management – with a list of
necessary funds and their sources.
Tariffs are ordered to grow
The dialogue
with the creditors coincided with the announcement of the next stage of growth
of utility tariffs. On June 16, the National Energy and Utility Regulation Commission
(NEURC) said that due to the increased cost of electricity, the tariffs for
water supply and drainage for the number of water utility companies across
Ukraine increased by 5-50%. In each city, the tariffs will be
different because the component of the cost of electricity in the
structure of the water supply cost varies. For example, the price of cold water
supply in Kyiv will grow about 30-35% - about UAH 3.5 per one cubic meter.
The
households will see the updated bills in July-August. By the way, the new bills
for hot water and heating will also come in that period. It should be recalled
that the NEURC in early June nearly doubled the tariffs for heat and central
heating services for the households. And the increase will be really
noticeable. The price of a cubic meter of hot water in Kyiv will range from UAH
67 to almost UAH 80 compared with the current UAH 41.
NBU repays debts
Last
week, the National Bank of Ukraine updated statistics on gross debt. According
to official figures, the country’s gross debt in the first quarter fell by $1.3
billion down to $117 billion, which is about $3,000 per capita. However, the
financiers do not consider these figures threatening.... Moreover, they call
steady a tendency to reduce the debt burden. In particular, S & P Global
Ratings in its recent report issued some very optimistic financial forecasts
for Ukraine. It is estimated that the level of gross debt and the national debt
will be declining by an average of 3-4% of GDP over the next four years. At the
same time, another rating agency - Fitch Ratings – was last week optimistic not
only in relation to the Ukrainian debt, but also to the stability of the
Ukrainian banks.
Following the confirmation of sovereign ratings with a stable
outlook, the positive rating actions have been carried out regarding five
financial institutions - Alfa-Bank (Ukraine), Ukrsotsbank, ProCredit,
Pravex-Bank and "Credit Agricole. Ukrsotsbank and Pravex-Bank were both
excluded from the list of nominees for the negative review. Hryvnia quotations
also spoke in favor of financial optimism: last week, the national currency
even showed some slight strengthening against the dollar. And his against the
background of the State Statistics Service data about the foreign trade
deficit, which in January-April amounted to $880.7 million.
Exports of goods
from Ukraine in January-April 2016 compared to January-April 2015 decreased by
14% to $10.813 billion, while imports - by 6.6% to $11.694 billion. However, as
early as next week, financial experts expect from the National bank not so much
of the good news but the next wave of bank purging. On June 17, the term for
mandatory recapitalization of banks to the minimum level of $120 million has
ended. As of April 1, 109 Ukrainian banks had their charter capital below the
required level.
By mid-June, part of the banks has fulfilled the NBU
requirement. But it will become clear in just a few days, what banks will fall
out of the Ukrainian financial market.
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