Igor Mazepa

CEO of Concorde Capital
Investment company

Official Web-site

“ Ukraine has to build the reputation of the country as a reliable place to do business. ”

Igor Mazepa: Possible scenarios for hryvnia exchange rate’s– could it repeat the falls of 1998 and 2008?


Igor Mazepa, CEO of Concorde Capital investment company, comments on the possible scenarios with the hryvnya exchange rate

The hryvnia strengthens when supply of foreign currency exceeds demand. Obviously, the main source of “excess” supply on the market became foreign currency that non-residents brought to Ukraine with the goal of buying Ukrainian bonds denominated in hryvnias. Only in July, the amount of Ukrainian bonds in the portfolios of non-residents grew by UAH 17.8 bln. It has swelled by UAH 17.8 bln since the year’s start – comments Igor Mazepa, financial expert, investment banker and CEO of Concorde Capital investment company.

On the other hand, the situation with the current account of the balance of payments in 2019 first half was relatively positive. Import growth rates were moderate, while agrarian exports supported the growth of overall exports at a solid level.

The current level of interest rates, amid conditions of a stable or strengthening hryvnia, makes Ukrainian bonds a very fortuitous investment. Regardless of the Finance Ministry reducing rates for quite an extended time, the interest of non-residents in buying Ukrainian paper has not fallen. Such a situation can fully continue for some time, and revaluation pressure can be maintained – says Igor Mazepa.

Today alone, the hryvnia will strengthen to less than UAH 25/USD. A

Analysts team of Concorde Capital expects a significant weakening of the hryvnia in the fourth quarter. In the second half this year, traditional growth in the trade deficit will occur. Other than that, a new political cycle will begin and investors will become more careful. It can’t be ruled out that non-investors could find dangerous signals in the actions of the new government, and that will lead to reduced volumes of their Ukrainian bond purchases, or even a complete halt – comments Igor Mazepa.

No matter what happens, Ukraine is a country with high investment risk, and limits on buying the paper of such countries among foreign investors usually close very quickly if there is a risk that something doesn’t go as it should – says Igor Mazepa.

In comparing the current situation with 2008, it can never be denied that the situation on the ForEx already looks a bit volatile. The problem is that the current excess supply in foreign currency is predominantly related to only a single source. As mentioned earlier, this source can quickly vanish and the situation can immediately turn around. If the reversal is swift, this can cause a reaction of panic in the market, which will lead to a high pace of devaluation.

There is apprehension that the hryvnia’s strengthening could also lead to the government getting relaxed. For example, ideas can surface of pausing talks with the IMF in the expectation that the situation on the ForEx will further allow the National Bank to replenish its reserves at the expense of purchases of foreign currency on the market. And that will enable making payments in foreign currencies without the involvement of demanding foreign creditors.

It’s important to remember that the main devaluation factor – a deficit in current account operations – will not go anywhere. Supporting a stable exchange rate in conditions of a trade deficit is possible, but a stable flow of foreign currency to the financial account is needed for that. Yet this flow should be provided not by hot money, but predominantly by direct foreign investment, which is not being observed at the current moment.