Table 1.1. Key Macroeconomic Indicators Source: NBU. reserves. Despite the proclaimed floating currency regime, the National Bank of Ukraine maintained a de-facto fixing rate of the Hrivnya to US dollars at 5.33, which changed insignificantly during 2000-2004. Gross international reserves increased to more than $7 billion at the end of 2003 and reached $9.5 billion in December 2004. Inflation remained in single digits between 2001 and 2003 and stood at 12.2 in 2004. Real GDP growth was 12 percent in 2004—the highest since Ukraine’s independence. A strong increase in money demand allowed an increase in M2 from 16.6 percent of CAT)D tm 1000+ 25 R-Hperant mM DNDN while esdincina inflatinn flenam 10 9 tn @ O-narrcantnwar Total bank assets grew from 16.2 to 34.8 percent of GDP over the period 1999-2004 (see Table 1.3). This growth almost entirely reflected increased credits to the non-financial private sector, which now equals 26.5 percent of GDP, although this remains low by com- parison with other emerging markets in the region. Source: WB ECSPE Staff Estimates, Balance of Payments Statistics (IMF), International Financial Statistics (IMF), Live Database (The World Bank). Source: National Bank of Ukraine. An excessive number of institutions, limited free float, corruption and heavy political intervention impact the quality of traders, lead to high costs and excessive margins. This also undermines the liquidity of the market. Moreover, despite the abundance of partici- pants, the choice of securities is limited. Source: Ministry of Finance. October 2003. Subsequently, rates on inter-bank credits have largely been maintained at the evels of 1-2 percent for overnight credits, 7-10 percent on weekly loans, and 10-15 percent on monthly loans. Following the recent political situation in November—December 2004, BU offered refinancing at 14 percent for overnight secured loans and 20 percent for overnight unsecured loans. Banks lending on the interbank market have strict ceilings for borrowing banks and charge risk premiums of up to 10 percentage points to riskier banks. Most short-term OVDPs issued are zero-coupon bills with maturities of up to one year, and although the government has offered 12- and 18-month bills, none of these issues have been sold except for a very small amount in 2001 and 2002 (around 5 percent of the total OVDPs outstanding). Short-term OVDPs are the dominating securities in the domestic Source: Ministry of Finance. “Only Direct Debt is included. Contingent liabilities (Guaranteed Debt) are excluded from the table. Source: MinFin. The term structure of government securities is very fragmented. As shown in Table 1.8, the instruments include interest bearing internal debt bonds (maturities up to 6 years), 3-6 month short-term internal debt bonds (KDO). 18-24 month medium term internal debt bonds (SDO); and long-term internal debt bonds (SDO), that are not shown here due to the lack of information about their issues. At the same time, given the volatility of the local interbank market and the gradual reduction of interest rates in domestic money markets, MOF is developing a strategy for expansion of local debt market. In February 2003 NBU allowed domestic commercial banks to trade Ukrainian Euro bonds although they could be sold in a local market only in UAH. Moreover, banks are allowed to buy Eurobonds only within the amount of the banks’ own FOREX cash and cannot purchase foreign currency in the Ukrainian interbank market for this purpose. ————— ore eee In early 2004, the Parliament endorsed the initiative of the Government to restruc- ture outstanding Government debt on VAT reimbursement by issuing new types of Gov- ernment bonds, i.e, VAT bonds. In 2004 the Ministry of Finance issued 5-year VAT-bonds in the amount of UAH 1.9 bil.. This decision is supported by the IMF and the World Bank programs. The Law on the 2004 State budget foresees issue of VAT bonds in the range of UAH 1-2 billion with 5-year maturity and a rate defined as 120 percent of NBU refinancing rate. Source: National Bank of Ukraine. companies, including large holding groups that distributed funds between their sub- sidiaries and daughter companies. Table 1.11. Largest Ukrainian Corporate Bond Issues in 2003 Source: Ministry of Finance. at the level of sovereign credit rating (see Table 1.12). In parallel, the market also witnessed several smaller issues of relatively young enterprises without existing credit history or credit rating (25.3 percent of total corporate bonds issue). About 62 percent of all the bonds issuers were located in Kiev, with Kharkov city being the second largest region with only 8 percent of total corporate bonds issue. Source: SSMCU (SEQ), ING Bank, USAID, MinFin. Table 1.14. Ukraine Equity Market Indicators Source: Staff estimates. Source: Ministry of Labor and Social Policy of Ukraine (MoLSP) & Pension Fund of Ukraine (PFU) “Socia Insurance and Pensions, Ukraine, 2003.” Source: Staff estimates. Table 1.19. Revenue Structure of the PFU as % of Total PFU Revenues, 1991-2002 revenue structure of the PFU from 1991 to 2002. The main source of revenues are PFU own revenues, amounting to roughly 90 percent of total PFU revenues, except for 1993, a year of hyperinflation which led to a situation of erosion of contributions in row values. Mean- while, within two years, the number of pensioners increased by almost 1 million, thus cre- ating a severe imbalance between spending and contributions. Pension arrears grew rapidly throughout the 1990s and by September 1998 cumulative pension arrears reached the level of UAH 1.8 billion. In September 2000 though, the Government eliminated payment arrears and managed to stabilise the situation. ca Sn EN lc a ee ee ee Lise ff... .. ih. MAT “Note: According to the Law on the State Budget of Ukraine, the rates of government planned mini- mum pensions in 2004-05 exceeded the rates of minimum wages. Source: Ministry of Labor and Social Policy of Ukraine (MoLSP) & Pension Fund of Ukraine (PFU) “Social Insurance and Pensions, Ukraine, 2003,” Accounting Chamber of Ukraine, Law on the State Budget of Ukraine for 2004-2005. were about 110 NSPFs; only 47 of them survived by 2003. The majority of the funds were established as corporate funds, although some operated as open-end funds. Fifteen pen- sion funds were members of the Association of Non-State Pension Funds of Ukraine cre- ated in December 1996. Table 1.22. Average Pensions Granted under the Law of Ukraine “On Pension Provision” as Percentage of Average Wages, 1971-2005 Source: DFP (NBFIR). “Division of companies by life and non-life began in 1997 after the passage of the new Law on Insurance (March 7, 1996). There were not many newly register insurance companies in 1997-1999. Instead, the market saw a large number of liquidations, primarily among non-life companies, as a result of strengthen capital requirements. Source: DFP (NBFIR). Source: DFP (NBFIR). Financial Services (2001) and the creation of the NBFIR, financial leasing operations were not regulated in Ukraine. For this reason, there are no reliable statistics on the sector, and all the analyses produced to date are based on experts’ estimates. According to the infor- mation of the State Statistics Committee, more than 60 leasing companies were registered inU cial vices. In ad kraine during the period of 1994-2003. As of April 1, 2005, the State Register of Finan- nstitutions contained 14 financial companies which can provide financial leasing ser- dition, 48 leasing companies were registered at the State Committee for Regulation of Financial Services. As of the end of 2005 Q1, leasing companies had 921 effec- tive easing agreements valued at UAH 36 million (see Table 1.27). Most o f the bank-related leasing companies were established to facilitate sale or rent Table 1.28. Distribution of Leasing Investments by Sectors of Economy Source: Ukrainian Leasing Association. Source: Ukrainian Leasing Association. Source: PFTS, www.pfts.com. able 2.3. Reporting Joint Stock Companie in Ukraine (December 2001) Note that the total number of reporting companies is smaller than the total number of companies because of non-compliance with reporting requirements. The table is reprinted from the ROSC Corporate Governance Assessment Ukraine, draft of July 11, 2002. Source: SCSSM. Responsibility and Accountability of Supervisory Boards developing access of SNGs to domestic capital markets will be particularly critical to mobi- lize these counterpart resources. “This number takes into account the total number of Joint Stock Companies currently under the sur- veillance of SEC. In 2005, the printing of these books on recycled paper saved the following:
