Igor Mazepa: Can EU money save Ukraine from budget crisis?

Concorde Capital CEO and Founder Igor Mazepa comments on whether a new tranche under EU's Macro Finance Assistance programme will help Ukraine address the budget deficit

Igor Mazepa, investment banker, CEO and Founder of Concorde Capital investment company, shares comments on whether a new tranche under EU's Macro Finance Assistance programme will help Ukraine address the budget deficit.

“A €600m tranche from the European Union will help the Ukrainian government to finance the planned public spending and save it the trouble of looking urgently for alternative sources to finance the national budget deficit,” comments Igor Mazepa. “However, the actual public year-end spending is likely to be lower than planned, because it is not possible to find full financing for the planned budget deficit”.

“The money from the European Union improves the chances of positive developments in Ukraine's talks with the IMF and a new tranche in the near future. The government can build on these arguments to attract a pool of investors for new placements of Eurobonds. In case of the positive outcome of the talks, Ukraine will gain access to capital from other international financial organizations,” comments Igor Mazepa.

“Ukrainian Eurobonds maturing in 2026 are currently traded with a yield of 4.6%, the lowest since this March. The return of new placements may depend on the maturity of new bonds and demand of Western investors for Ukraine's new placements,” says Concorde Capital CEO.

“By and large, the interest rates on government bonds have been changing unevenly throughout this year. They dropped in the middle of the year when the National Bank of Ukraine significantly reduced the discount rate,” says Igor Mazepa.

Nobody anticipated possible problems with financing the budget deficit at the year-end, because Ukraine expected financing from the IMF and other international financial organizations by the end of 2020. Moreover, everybody expected at least one more issue of international Eurobonds. When the outlook for external borrowings deteriorated, the Ministry of Finance began to raise interest rates on government bonds, but this did little to increase proceeds from new placements. In addition, the government has not yet managed to return non-residents to the market,” commented Igor Mazepa the new tranche from the European Union.