Macroeconomics
Despite recent speculative attempts to undercut the reputation of Ukraine’s state finances, the country looks to be on sound footing for the near term. With a debt¬to¬GDP ratio of less than 40%, improving tax collection rates, and more than USD 30bn in forex reserves, Ukraine is in better fiscal shape than many EU national governments, and we view concerns over the possibility of a Ukrainian sovereign default within the next two years as groundless. In 1Q12, the government demonstrated that it is capable of raising funds needed for upcoming debt redemptions via domestic bond auctions. We credit this demand for UAH-denominated bonds (OVDPs) to a surge in retail bank deposits, but we acknowledge that the NBU will likely need to begin buying OVDP issues in 2H12 to keep yields at affordable levels. Looking ahead to 2013, we believe that Ukraine will finally be forced to raise its domestic energy tariffs in order to unlock IMF financing and demonstrate the sustainability of its budget polic
