The NBU allowed fully state-owned companies to transfer funds abroad to service external debt obligations that were restructured on terms agreed with the Ukrainian government. Also, the NBU permitted banks and non-bank financial institutions to sell cash currency in the amounts equaling their balances as of Apr. 13, 2022, on top of earlier agreed caps. Lastly, the NBU expanded the list of medical services for which individuals can make cross-border transfers, including for prosthetics and rehabilitation purposes. All these changes took effect on Sep. 16.

According to Ukrainian Deputy PM Oleksandr Kubrakov, two cargo ships have arrived in the Black Sea port of Chornomorsk, the first vessels to sail to Ukraine via a temporary corridor offered by the Ukrainian military after the UN-brokered Black Sea grain deal was suspended in mid-July.

Ukrainian advances on the southern front appeared to have slowed last week, including in the salient north of Tokmak, Zaporizhya region (circled in map below). This is where Ukrainian forces have advanced furthest in the south to date, but Russia has apparently succeeded in significantly slowing the Ukrainian progress for now after bringing in substantial reinforcements and counterattacking, albeit unsuccessfully. The only area where visible front-line changes occurred last week, in Ukraine’s favor, was Bakhmut. Ukrainian forces liberated two small villages south of the town, continuing their gradual envelopment push. However, Russian positions in the Bakhmut sector overall are not yet seen as being seriously threatened, with Russian forces maintaining their defensive positions west and north of the town. The rest of the front, both in the east and south, remained virtually unchanged, including along the Kharkiv-Luhansk region border where Russian forces maintain an offensive posture.

The NBU cut its key rate by another 200bp, to 20% p.a., following a 300bp cut in July, in line with its forward rate guidance from the same month. The Bank also lowered its rate on overnight and 3-month certificate of deposits (CDs) by 200bp, to 16% and 20% respectively, keeping the latter equal to the key rate. The refinancing loan rate was cut by 200bp as well, to 22%. At the same time, the NBU substantially reduced the limits on banks’ purchases of 3M CDs by setting the coefficient linking the CD purchase limit and the amount of household term deposits attracted by the same bank at 35%, twice lower than before (effective Sep. 18).

According to NBU Deputy Governor Yuriy Heletiy, permission to repatriate “new” dividends is envisaged by Stage I of the Bank’s F/X Liberalization Strategy approved on Jun. 29, while repatriations of “old” dividends (2021 was mentioned as an example) would be included into Stage III due to their sizable amount.

A year and a half into Russia’s war on Ukraine, virtually all domestic private Eurobond issuers have remained current on their bond obligations.

According to a new monthly survey conducted by the Ukrainian Institute for Economic Research (IER), the share of manufacturing enterprises operating with capacity utilization levels of 75% or higher dipped by 2pp m-o-m to 57% in August, extending July’s 3pp drop, while the share of idle enterprises remained unchanged m-o-m at 4%. In line with earlier surveys, rising input costs remained the largest obstacle to business activity, cited by 57% of respondents, up 5pp m-o-m. Complicated logistics remained second-placed, mentioned by 41% of surveyed firms, down 2pp m-o-m. Other major obstacles included weak demand, power outages, labor shortages, supply chain disruptions, and security issues.

Crude steel production in Ukraine totaled 3.9 Mt in 8M23 (-24% y-o-y), with finished and semi-finished steel output at 3.4 Mt (-24% y-o-y) and hot metal production at 4.0 Mt (-22%).

Fitch Ratings lowered its Long-Term Foreign Currency Issuer Default Rating (IDR) and senior unsecured rating on Vodafone Ukraine (VFU) by one notch, from CCC to CCC-. The downgrade reflects Fitch expectations that VFU would not have sufficient liquidity in its foreign accounts to service upcoming coupon payments, as it has already been utilized to meet 2023 obligations and the company’s ability to accumulate F/X offshore remains limited amid declining roaming revenues. In turn, using local UAH liquidity for debt service will remain restricted by an NBU ban on cross-border F/X payments, according to Fitch. The agency also highlights high refinancing risk for the outstanding $400m Eurobond maturing in February 2025.

The Ministry of Finance placed UAH 8.6bn ($234m) of hryvnia-denominated bonds and $150m of USD-denominated paper at a primary auction yesterday.

The government submitted to parliament draft amendments to the 2023 budget law, proposing UAH 317bn of additional spending ($8.7bn at current exchange rate), mostly for military purposes. The Cabinet proposed financing the spending hike through UAH 26bn of additional revenues and a UAH 290bn or 17% increase in the budget deficit, to UAH 2,010bn ($55bn). The higher budget deficit would be financed with additional borrowings, including UAH 184bn of net domestic debt placements and UAH 106bn ($2.9bn) growth in net external borrowings, to the equivalent of $50bn.

President Volodymyr Zelensky has vetoed a bill on the reinstatement of electronic asset declarations for public officials. In a video address explaining his decision, Zelensky said he disagreed with an amendment added by lawmakers to leave the declarations database closed for public access for a year and called on parliament to quickly approve a corrected version. The bill retroactively applies to the period since the start of the Russian invasion, when declarations were suspended with the imposition of martial law, requiring that officials report their assets for both 2021 and 2022 during 90 days after the bill takes effect. In includes exceptions for officials who serve in the defense and security forces or stay in occupied territories.

Ukrainian Finance Minister Serhiy Marchenko said the government would table amendments to the 2023 budget law aimed at increasing military spending, adding that military outlays in 2024 were unlikely to be lower than this year. He said the 2024 budget draft would be based on a projected annual average exchange rate of UAH 41.4:USD. On the financing side, Marchenko expressed hope for $3.3bn of additional budget financing from the US this year and $12-14bn in 2024.

DTEK Energy increased electricity production by 28% y-o-y in May-August, bringing 8M23 output to 9.9 TWh. The company also reported completing repairs on 13 power generating units, out of the total of 27 it planned to restore by year-end, having spent UAH 2.3bn for the purpose in 8M23, with full-year repair costs estimated at UAH 3.5bn.

Ukraine’s headline CPI fell by 1.4% m-o-m in August on top of a 0.6% m-o-m drop in July, decelerating in y-o-y terms to 8.6% from 11.3% in July and a high of 26.6% in December. Core inflation, an indicator adjusted for administratively regulated tariffs and prices of raw foods and energy, was flat m-o-m in August, and slowed to 10.0% y-o-y from 12.3% in July and 22.7% in February.