Russian forces make virtually no territorial gains last week despite continued heavy assaults in Donetsk region

According to Ukraine’s State Statistical Service (SSS), 4Q23 real GDP provisionally rose by 4.7% y-o-y, bringing 2023 growth to +5.3%.

Ukraine’s direct and guaranteed public inched down by 0.8% or $1.2bn m-o-m in February, to $144bn, declining by 1.1% YTD.

DTEK Executive Director Dmytro Sakharuk provided additional details on the extent of damage suffered by the group’s power plants from last week’s Russian strikes. He confirmed earlier information that the company lost close to 50% of its installed capacity, with the Burshtyn and Ladyzhyn power plants in western and central Ukraine, accounting for close to 40% of DTEK’s power generation, hit hardest. According to Sakharuk, all power generating units at these two plants (16 in total) were damaged during the latest attack. While one or two units can be repaired relatively quickly, repairing the rest may take 6-24 months. He said the most acute problem was the lack of transformers, as their previously accumulated inventory had been used up to repair earlier damage. On top of this, DTEK’s Kurakhivska power plant in the Donetsk region remains idle after being hit by Russian guided glide bombs.

Ukraine’s merchandise trade deficit narrowed to $1.5bn in February from $1.7bn in January as exports were flat m-o-m at $3.4bn (+2.5% y-o-y) and imports dropped by 2.3% m-o-m to $5.0bn (-6.0% y-o-y) over the period.

The Ministry of Finance placed UAH 9.2bn ($234m) of hryvnia-denominated bonds and $72m of USD paper at a primary auction yesterday.

Ukraine’s iron ore exports fell by 18% m-o-m to 2.5 Mt in February (+110% y-o-y) after rebounding by 94% in January, bringing the 2M24 volume to 5.7 Mt (+164% y-o-y). In value terms, iron ore exports dropped by 13% m-o-m to $257m last month (+105% y-o-y), totaling $0.6bn in 2M24 (+134% y-o-y).

Minutes from the latest NBU Monetary Policy Committee (MPC) meeting, which preceded the central bank’s rate meeting on Mar. 14, showed 9 out of 11 committee members being in favor of cutting the key rate. Five members argued for a 100bp cut, to 14%, and four for -50bp, with the NBU Board ultimately approving the smaller cut. The two remaining MPC members supported a flat rate.

Ferrexpo reported yesterday that its Ukrainian subsidiary faced no disruptions in either production or sales in February, with the monthly production volume hitting the highest level since the start of the Russian invasion in February 2022.

Having approved the third review of its $15.6bn 4-year EFF program for Ukraine on Mar. 21, the IMF published its revised macroeconomic forecasts and debt sustainability analysis (DSA) on Mar. 22. The revised DSA incorporated the actual 2023 public debt stock and exchange rate data, whereas the IMF still used estimated real and nominal GDP figures as Ukraine’s State Statistical Service delayed the release of official 2023 GDP data (expected this week). The Fund improved its 2023 real GDP growth estimate by 0.5pp, to 5.0% y-o-y, and revised the GDP deflator up by 0.6pp, to 19.2%, thus improving 2023E nominal GDP by 1.2% to $178bn. At the same time, the IMF revised its 2024-2033 macro forecast only marginally, as its base-case assumption about the war expectedly ending in 2024 was left unchanged. Likewise, the IMF left largely unchanged the projected amounts of official-sector external support, expecting $38bn this year (including $12bn in grants, of them $7.8bn from the US), $23bn in 2025 ($5.36bn in grants), and $14bn in 2026 ($2.5bn).

Russia conducted a series of aerial attacks on Ukraine’s energy infrastructure between Mar. 22-24. The heaviest strike, on Friday, included almost 90 missiles and over 63 suicide drones, followed by smaller attacks. The Friday strike targeted the power generation, transmission and distribution assets, while yesterday’s attack also affected one of Naftogaz’s underground gas storage sites (UGS), damaging ground equipment.

Russia conducts new large-scale aerial strikes against Ukrainian civilian infrastructure, targeting energy sector after a long break

The IMF Board approved the third review of its $15.6bn 4-year EFF program for Ukraine on Mar. 21, greenlighting the disbursement of a fourth budget support loan tranche of $0.9bn, and also published revised macroeconomic forecasts and debt sustainability analysis (DSA) on Mar. 22. Despite its high sensitivity to underlying parameters, which we recently explored in detail (please see Digging Into IMF DSA Ahead of Restructuring Talks published on Mar. 1), the revised DSA should remain instrumental in defining the parameters of Ukraine’s prospective debt operation that would encompass $21.2bn of sovereign bonds, an est. $1.5bn of other commercial liabilities and est. $5.8bn of bilateral debt.

The IMF Board approved the third review of its $15.6bn 4-year EFF program for Ukraine, greenlighting the disbursement of a $0.9bn budget support loan tranche, the program’s fourth. The IMF again praised Ukraine’s performance in the difficult wartime conditions, noting that Ukrainian authorities met all but one quantitative performance criteria, only missing the tax revenue target by a minor margin, achieved all indicative targets for end-December, and were compliant with all structural benchmarks through end-February.

Russia conducted another large-scale aerial attack against Ukraine in the early hours of Friday, launching dozens of combat drones followed by a mass missile strike across the country. According to the Ukrainian military, Russia fired close to 90 cruise and ballistic missiles, including the long-range Kh-101/555, Iskander and Kinzhal missiles and short-range S-300 air-defense missiles modified to hit ground targets, as well as 63 combat drones. The Ukrainian air defense reported intercepting 37 missiles and 63 drones.

The rating agency S&P on Mar. 20 lowered its long-term issuer credit rating on Vodafone Ukraine (VFU) by one notch, from CCC+ to CCC. The downgrade reflected S&P’s view that, despite VFU’s resilient operating performance and both financial capacity and willingness to repay its $400m Eurobond due in February 2025, the company could initiate a debt restructuring due to the prevailing NBU F/X restrictions leaving the company unable to repay its foreign debt using its local liquidity.