Ukrainian Finance Ministry's net borrowing on OVGZ market reached 204.1 bln hryvni in 2023 - NBU

MOSCOW. Jan 9 (Interfax) - The amount borrowed by the Ukrainian Finance Ministry on the domestic debt market in 2023 was 204.112 billion hryvni higher than what it spent to redeem earlier issued domestic government bonds (OVGZ), including 39.132 billion hryvni of this difference seen in December, Ukrainian media said, citing the National Bank of Ukraine (NBU).

"The common understanding of challenges, cooperation and a new quality of dialogue between the fiscal and monetary authorities helped restore the domestic debt market's functionality and prompted it to begin generating net financing in 2023. This result and international partners' assistance enabled us to get through a very difficult year without resorting to monetary financing," NBU Governor Andrei Pyshny was quoted by the bank's press release as saying.

Hopefully, the challenges of 2024 will be met in the same coordinated manner, Pyshny said.

The OVGZ rollover in 2023 was 150% at par in all currencies at the current official exchange rate.

In 2023, the Ukrainian government raised 401.785 billion hryvni, $3.688 billion and 735.8 million euros by offering domestic government bonds at auctions, but allocated 216.034 billion hryvni, $3.342 billion and 588 million euros for OVGZ redemption, the NBU Depository said.

The government raised 554.176 billion hryvni, $5.617 billion and 1.713 billion euros via primary auctions from the onset of the crisis through December 31, 2023, spending 429.372 billion hryvni, $6.136 billion and 1.251 billion euros on OVGZ redemption over this period, the ministry said.

An upturn on the domestic debt market in 2023 was aided by the NBU allowing banks to use benchmark domestic government bonds to cover up to 50% of their total required reserves, gradually expanding this list, the NBU said. Furthermore, it enabled the repatriation by non-residents of OVGZ interest payments received after April 1, 2023, but introduced a requirement that the investor shall have owned such domestic government bonds continuously for a three-month period that precedes the receipt of said interest.

The military bonds portfolio owned by individuals and legal entities as of January 1, 2024 is equivalent to 85.4 billion hryvni versus 34.5 billion hryvni on January 1, 2023, the NBU said. Non-residents' portfolio of military bonds grew by more than 5.2-fold, standing at 14.779 billion hryvni, $24.2 million and 0.1 million euros as of January 1, 2024. Military bonds' main difference from ordinary bonds is the simplified identification of buyers introduced at the start of the crisis specially for such issues.

The updated Extended Fund Facility program with the International Monetary Fund projects net internal financing in Ukraine to grow to 2.1% of GDP in 2024 from 1.5% of GDP in 2023, including to 2.2% of GDP from 2% of GDP on the part of banks. Given the GDP forecast, it implies bank's net OVGZ purchase in the amount of 168.1 billion hryvni in 2024 versus 128.7 billion hryvni in 2023.

Ukrainian Finance Minister Sergei Marchenko later estimated the amount of required net financing for the budget through OVGZ placements in 2024 at $3.8 billion, or at around 154.7 billion hryvni at the yearly average exchange rate set in the budget, compared to $37.3 billion in external financing.