Ukraine Markets Daily (January 12, 2016)

Market news

  • IMF is poised to accept Ukraine’s controversial 2016 budget package 
  • Ukraine’s government adopted a strategy against money laundering

Market comment

The UX Index was down by 2.3% on Monday, and down by 2.6% in the US dollars. The PFTS Index was down by 0.6% in UAH terms on Monday. Eight out of ten stocks in the UX index were down in UAH terms, with the largest decrease recorded for Avdiivka coke (-5.8%), CentrEnergo (-4.4%) and Ukrnafta (-4.0%).

 

On the interbank exchange market, the USD/UAH rate was up by 0.2% to 23.40 (mid price) on Monday, according to Bloomberg. The official exchange rate reported by the NBU was UAH 23.50.

Ukraine 5-year CDS were unchanged on Monday.

 

IMF is poised to accept Ukraine’s controversial 2016 budget package

The IMF has positively assessed the Budget Law for 2016, adopted by the Ukrainian Parliament on December 25, 2015, together with the underlying legislation package, according to the Finance Minister Natalie Jaresko. However, a positive decision of the Fund on the third tranche of the EFF program financing is possible only after Kyiv meets its commitments in anticorruption and reform areas, the Minister stated.

“The IMF agreed that the adopted budget generally complies with the program targets”, Jaresko said in a press comment. “The IMF management will consider not only the adoption of the 2016 budget, but the execution of all the preliminary conditions and structural benchmarks, the terms of which were scheduled before the end of December 2015, when making the decision about the disbursement of the next tranche”, Jaresko added. If Ukraine meets all these conditions, the IMF Board meeting on the issue may take place by end of January or in February. The Minister refuted the earlier statement of the Deputy Finance Minister Artem Shevalev about the possibility of uniting the third and fourth IMF credit tranches into one disbursement. “In our view there are at this stage no real possibility to unite several IMF tranches”, Jaresko said.

In a related development, the NBU Head Valeriya Gontareva announced that the decision about the cancellation of the restrictions on the foreign currency market will be postponed by about six months due to the delay in the disbursement of the IMF loan.

Our view: 

As expected, the IMF accepted the budget documents adopted on December 25, 2015, while pressing for the final execution of the upfront actions, needed for the disbursement of the third credit tranche to the country. Considering the complex process of finalizing the adjusted program Memoranda and pushing it through the Parliament, and with the next Parliamentary plenary session scheduled only by late January, we see the likelihood of the IMF’s decision on the third credit tranche to come only by March of 2016.

 

Ukraine’s government adopted a strategy against money laundering

The Ukrainian government published the anti-money laundering strategy for the period up to the year 2020. The decision was adopted on December 30, 2015, according to the announcement, and concerns the measures to avoid and fight against laundering of money, generated from criminal activities, aimed at terrorist activity financing, or related to the dissemination of weapons of mass destruction.

The implementation of the strategy would secure the systemic realization of the state policy in the area of prevention and fighting money laundering from the abovementioned activities, harmonize the national legislation with international standards, and reduce the corruption level in the country.

The strategy supposes rising the qualification of the public financial monitoring specialists, as well as the people responsible for primary financial monitoring.

The implementation of the strategy will allow increasing the inflow of foreign investments into the national economy, increase the income ledger of the state budget, and contribute to the liberalization of the visa regime with the European Union for Ukrainian citizens, according to the backgrounder to the document.

The document foresees a yearly reporting by the financial monitoring services and other public units about the implementation of the strategy.

Our view: 

The adoption of the strategy meets the double issue of securing the visa liberalization regime with the EU, and improving the country’s investment attractiveness.  In the meantime, we see the effort to harmonize the legislation with international standards and practice while consolidating the public management in the area to be highly positive.

 

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