Ukraine Markets Daily (January 15, 2016)

Market news

  • IMF Board’s consideration of next tranche to Ukraine not scheduled yet, staff consultations still ongoing 
  • Ukraine joins the dedicated European program for SMEs  

Market comment

The UX Index was down by 0.2% on Thursday, and down by 3.7% in the US dollars. The PFTS Index was up by 0.4% in UAH terms on Thursday. Seven out of ten stocks in the UX index were down in UAH terms, with the largest decrease recorded for Kryukiv carriage (-4.8%), Enakievo MP (-4.6%) and Ukrnafta (-2.2%).


On the interbank exchange market, the USD/UAH rate was up by 3.5% to 24.13 (mid price) on Thursday, according to Bloomberg. The official exchange rate reported by the NBU was UAH 23.95.

Ukraine 5-year CDS were unchanged on Thursday.


IMF Board’s consideration of next tranche to Ukraine not scheduled yet, staff consultations still ongoing

Since the last IMF mission in Kyiv in November 2015, the IMF staff discussion with the authorities concerning the review of the EFF program has been continuing, the IMF Director of Communications Department Gerry Rice announced during a press briefing on January 14, 2016. “Significant work at the technical level has helped to advance mutual understandings and also has allowed for the adoption of the 2016 budget and that was in late December last year so we remain engaged to finalize the policy framework for 2016 that would then pave the way for the completion of the second review”, Gerry Rice emphasized. 

“I don't have any indication that the (second and third) reviews are about to be combined. My information at the moment, is the second review that we are looking at”, the IMF representative noted concerning the chances of combining the second and third reviews into one, larger lump sum payment.

The IMF continues to encourage Ukraine and Russia to achieve a cooperative solution on the debt issue that contributes to the financing and the debt objectives of the program and the Board would be assessing those efforts at the time of the second review, Gerry Rice commented on the Ukrainian debt to Russia. “The whole range of issues related to the Ukraine program will of course be discussed in the context of the second review and that will include the debt and everything else”, he stated. 

Meanwhile, “the program includes a number of measures to fight corruption, including the establishment of an Anti-Corruption Bureau, strengthening asset disclosure requirements for high level officials, and enhancing the anti-money laundering framework in Ukraine. The status is the authorities are working on the implementation of those measures, and the program reviews will, of course, be checking the progress”, Gerry Rice said.

The date of the next Board meeting when the second review would take place is not set yet, but it depends on resolving some outstanding issues of structural fiscal measure needed to ensure medium term sustainability, the IMF representative stressed. 

Our view: 

The news is neutral, confirming our earlier assumptions that the IMF will maintain the EFF program for Ukraine, though postponing the final decision on the disbursement of the next credit tranche beyond January 2016, after some upfront actions are taken by the Ukrainian government. We see the Fund’s stance on the latest development in Ukraine to be fairly indulgent and expecting no extraordinary turn in the Ukrainian case. In the meantime, we see the Fund’s linkage between the resumption of the financing and the formulation of the overall Ukrainian agenda for 2016 to entail a postponing of the next credit tranche up to early 2Q2016. However, we think that such a development is afordable in the current conditions, thanks to the relative stabilization of the overall economic, financial, and political situation in the country.


Ukraine joins the dedicated European program for SMEs

On January 13, 2016, the Cabinet of Ministers of Ukraine signed an agreement with the EU on Ukraine's participation in the EU “Competitiveness of Enterprises and Small and Medium-sized Enterprises 2014-2020” program (or COSME), the government’s press service reported.

"COSME is a leading EU program with a budget of EUR 2.3 billion, aimed at creating favorable conditions for the development of SMEs, and is implemented in the framework of the strategy “Europe 2020”, the press service said.

The accession to the program will contribute to the development of the Ukrainian business environment, analytical and advisory services related to export-import activities of the enterprises. It will also expand trade and economic relations, as well as harmonize Ukrainian legislation in the sphere of small and medium enterprises with the European standards, while improving the conditions and culture of doing business, the statement reads.

The program envisages the participation of Ukraine in the following components:  improving the access of SMEs to markets, foreseeing the extension of advisory and analytical services related to the export-import activities of enterprises, internationalization and expansion of trade and economic ties; development of the SMEs regulatory framework, identifying and removing the unnecessary regulatory barriers in the internal EU market, and implementation of the Small Business Act for Europe;  the creation of a better culture of doing business. The latter component is implemented through diverse training and educational programs (including funds under the "Erasmus program for entrepreneurs"), sectorial workshops, seminars, exchange programs, internships, and others.

Our view: 

The government’s decision may mark a turning point in the promotion of Ukraine’s business environment, considering the heightened discussions around the development of the SME segment in the country’s economy over the last decade. We think that a decisive step has to be done in the field, considering the strategic meaning of the small and medium business in the transformation of the country. The failure to promote SMEs lies at the root of the country’s defeat in modernizing its economy, transforming the country’s social and political structure through strengthening of the middle class, and developing the domestic market, especially its retail segment.



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