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Week’s balance: Groysman in U.S., billion from WB, and another growth of tariffs

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.

Groysman's first official visit to the United States. Press conference at the National Press Club in Washington, DC, June 16, 2016 / Photo from UNIAN
Groysman's first official visit to the United States. Press conference at the National Press Club in Washington, DC, June 16, 2016 / Photo from UNIAN

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.

Ukrainian Prime Minister Volodymyr Groysman and U.S. Vice President Joe Biden, Washington (USA), June 15, 2016 / Photo from UNIAN
Ukrainian Prime Minister Volodymyr Groysman and U.S. Vice President Joe Biden, Washington (USA), June 15, 2016 / Photo from UNIAN

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 Gerry 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.

During the meeting of Prime Minister of Ukraine Volodymyr Groysman with Managing Director of the World Bank Sri Mulyani Indrawati, Washington (USA), June 16, 2016 / Photo from UNIAN
During the meeting of Prime Minister of Ukraine Volodymyr Groysman with Managing Director of the World Bank Sri Mulyani Indrawati, Washington (USA), June 16, 2016 / Photo from UNIAN

"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 has updated financial statistics / Photo from UNIAN
Last week, the National Bank has updated financial statistics / Photo from UNIAN

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.

Olesia Safronova (UNIAN)

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