After days of silence, Ukraine’s presidential administration admitted that $2 billion which recently appeared on the National Bank of Ukraine’s accounts was a loan from Russian state-controlled commercial bank Vneshtorgbank.
Serhiy Lyovochkin, head of the presidential administration, also said that talks with the International Monetary Fund on more loans were facing obstacles.
“This is a simple loan,” Lyovochkin said of the $2 billion received from the Russian bank, also known as VTB.
State officials have contradicted themselves since analysts last week spotted the extra funds on NBU accounts.
Irina Akimova, deputy head of the presidential administration, said on June 15 that no such loan had been signed.
Prime Minister Mykola Azarov said June 15 in Luxemburg that the terms of the loan required confidentiality until the deal was complete.
Azarov said he would disclose the terms of the loan upon his return to Ukraine from Western Europe. In an interview with Bloomberg the same day, he said that Ukraine would repay VTB after receiving an equivalent amount from a Eurobond issue.
In carefully worded comments, Russia’s ambassador to Ukraine, Viktor Zurabov, seemed to confirm to journalists last week that VTB granted a bridge loan for six months at a rate of 6-7 percent.
The fact that a separate loan of $2 billion from a Russian state-linked bank is on its way to Ukraine’s nuclear power operator, Energoatom, has caused additional confusion. In particular, President Viktor Yanukovych seemed to confuse the two different loans on a TV talk show. Lyovochkin said he was unsure of the details regarding this loan, which is a credit line apparently to fund construction of the third and fourth reactors at the Khmelnytsky nuclear power plant by Russian state nuclear company Rosatom.
Ukraine’s government needs the money due to unexpected delays in landing up to $19 billion in fresh loans from the IMF, which kept Kyiv financially afloat during last year’s deep recession with nearly $11 billion in credit.
The government thought that by adopting a state budget of roughly $30 billion or so on April 27, with deficit spending of 5.3 percent, the IMF would be satisfied. In order to reach this deficit target, the Yanukovych administration reached a controversial agreement with Russia for a 20 percent price reduction on gas supplied to Ukraine by Russia, in exchange for prolonging the lease on the Russian Black Sea naval base in Sevastopol until at least 2042.
Instead, the IMF has expressed concern that the real deficit will be much larger.
The budget penciled in $2 billion from the IMF to help fund the deficit, with an additional $1.3 billion in foreign currency borrowing, including a Eurobond issue. But the ongoing European sovereign debt crisis, especially severe in Greece, has convinced the IMF that fast deficit reduction is of paramount importance, even for countries like Ukraine, which has relatively low sovereign debt of 40 percent.
Paul Thomson, deputy director of the IMF’s European Department, explicitly warned last week in Kyiv that the fund was worried about Ukraine’s foreign debt. Analysts have said that the budget’s revenue expectations are exaggerated. Many expenses are also off-budget, such as the Pension Fund deficit and gas monopoly Naftogaz’s deficit.
Lyovochkin admitted that talks with the IMF were “very difficult,” but expressed hope that a deal could be reached.
Meanwhile, Ukraine’s proposed Eurobond issue is also looking increasingly shaky against the background of the Greek and European debt crisis. Without a clean bill of health and funding from the IMF, Ukraine could be charged punitive interest rates, with Ukraine’s sovereign Eurobonds yields currently up to 8.3 percent.
The loan will enable the government to cover current cash needs, including domestic hryvnia debt repayments due in June-July of Hr 4.5 billion, according to Concorde Capital’s Mykyta Mykhaylychenko.
“The government decided to tap the VTB funding after the recent global debt market woes made a successful Eurobond placement improbable in the near-term,” said Vitaliy Vavryshchuk of BG Capital. “In addition, the sluggish negotiations with the IMF leave little hope Ukraine will see the money before September, in our view. The terms of the VTB loan are definitely favorable.”
Kyiv Post staff writer Graham Stack can be reached at [email protected].
