Foreign Currency Reserves At New High

KIEV, Ukraine -- Ukraine’s foreign currency reserves have reached a new high, topping the $20 billion mark last month for the first time since the country declared independence in 1991.

Although reserves have enjoyed significant steady growth for at least the last seven years, the country got a particularly large foreign-currency injection in November on the back of growing exports, intensified foreign investment and a $1 billion Eurobond placed by the government last month.

According to the National Bank of Ukraine, foreign currency reserves grew by almost 8.9 percent month-on-month in November to $21.2 billion. National reserves were at $19.5 billion in November of last year.

For comparison, Poland’s last reported foreign-currency reserves, in October 2006, totaled a little over $47 billion. Russia, flush with cash thanks to large oil and natural gas exports, has reserves in excess of $200 billion.

Oleksandr Viktorov, an analyst with Kyiv-based investment bank Concorde capital, said there were several factors that have led to the sharp increase in Ukraine’s reserves in November, apart from the Eurobond issue.

One of them, he said, was an earlier external loan made to the NBU in September for 386 million Swiss Franks (almost $320 million). In addition, since last May, Ukraine has been enjoying growth in export revenues from its metals industry, due to high global steel prices. Ukraine is ranked 7th in world steel exports.

Merger and acquisition deals starting in 2005 also played a significant role in bringing up Ukraine’s foreign currency reserves, due to a delayed effect from the process of receiving the funds, Viktorov said. Mergers and acquisitions were particularly hot in the country’s banking sector, where foreign financial groups have been buying up Ukrainian banks at a premium, he added.

In addition, the $4.8 billion in funds received from the purchase of Ukraine’s lucrative Kryvorizhstal steel mill by International steel giant Mittal Steel, the deal for which was cut last fall, had an effect on last month’s currency-reserve growth, according to Viktorov.

The net effect of the country’s larger currency reserves will be good for the cash-strapped country.

“Accumulation of international reserves is generally a positive trend, especially in emerging markets, as reserves serve as insurance against the risk of sudden outflow of foreign currency or any other risk that may lead to a balance-of-payments crisis”, said Halyna Antonenko, equity analyst with Kyiv-based investment bank Foyil Securities.

Antonenko said the NBU has enough resources to smooth out short-term fluctuations on the foreign exchange market and keep the national currency stable.

Ukraine’s current level of reserves is “comfortable,” Antonenko said, especially taking into account that that devaluation pressures on the Ukrainian currency could increase next year due to the latest gas-price hike from Russia or an expected deterioration in the trade balance.

Source: Kyiv Post