Ukraine's Debt Is Manageable

With regard to Christopher Granville's Jan. 18 op-ed "Ukraine is Headed for National Bankruptcy": The country's debt level remains manageable. Ukraine's pre-crisis gross external debt-to-GDP stood at a healthy 57%. After the crisis erupted, debt remained stable at around $100 billion but the contraction of GDP pushed the ratio to an estimated 90% by end-2009. On this measure, Ukraine has a considerably more secure position than emerging European Union peers such as Hungary (186% by 3Q09), Bulgaria (123%) or Slovenia (119%).

Ukraine's end-2009 external public debt amounted to $24 billion, or 21% of GDP. A mere $1 billion out of this amount is due in 2010, with the country's current international reserves totaling $25.3 billion. In the private sector, refinancing the current portion of the external debt ($80 billion in total, $18-$20 billion due in 2010) is hardly a "miracle scenario" since the bulk of this amount is related-party cross-border lending in the corporate sector. Out of an estimated $28 billion that was due in 2009, 82% was rolled over.

Although the budget suffered from the economic downturn (we estimate the 2009 budget gap at about 9% of GDP, or $10 billion), Ukraine financed the deficit without extensive money printing—largely thanks to the IMF stand-by program. This helped to stabilize the currency and reduce inflation to 12.3% in 2009 from above 20% in 2008.

The global commodity recovery is supporting Ukraine's steel giants, and the economy has been growing for three successive quarters at 2.5% on average (10% annualized). We record a clear revival of local, Russian and Western interest in Ukraine's market, with the stock index up 273% from its bottom in March 2009 and 14% so far in 2010.

Source:online.wsj.com/