Ukraine expects to receive the remaining $12 billion in a Russia bailout deal early next year to help boost its economy, Prime Minister Mykola Azarov said.
Ukraine’s central bank has already received the first $3 billion from selling bonds to Russia, eliminating the risks it faced from dwindling reserves, Azarov told a weekly government meeting today in capital, Kiev.
“The Russian credit is very serious, a turning point for stabilizing our state finances and economy,” Azarov said. It will help Ukraine get better borrowing terms in international markets next year, he said.
Ukraine sought a bailout to stay afloat while struggling with the third recession since 2008. Foreign currency reserves have slid to $18.8 billion, a seven-year low. Russia agreed to buy $15 billion of government bonds and cut the natural gas price by 30 percent last week after Ukrainian President Viktor Yanukovych snubbed an agreement with the European Union, sparking the biggest street protests in almost a decade.
Russia has paid for the first $3 billion of Ukrainian two-year Eurobonds with a 5 percent yield. That compares with a yield of 11.57 percent on the government’s 2016 international dollar bonds on Dec. 16, the day before the agreement. The yield on those notes tumbled 240 basis points, or 2.4 percentage points, to 9.17 percent yesterday.
“Russia’s credit has very favorable terms but we will have to repay it,” Azarov said. “We should use the funds to upgrade our industry. Only production of competitive goods will have a long-lasting effect on our economic development.”
Ukraine’s economy shrank 1.3 percent in the third quarter, the same as in the previous three-month period, according to the state statistics data. Azarov said economy will stay flat in all of 2013 after expanding 0.2. percent in 2012. Inflation will not exceed 1 percent, he said.
Ukraine’s government plans to cut the gas price gradually for companies, while leaving utility tariffs unchanged for households, Azarov said. The price will decline by about 30 percent through the fourth quarter of 2014 for industries, allowing them to invest in upgrades, he said.