Highlights Given the expectation of improved debt dynamics on the back of structural reforms, Moody’s has upgraded Ukraine’s sovereign rating from Caa3 to Caa2 and changed the outlook to “positive” from “stable”. The rating change is a positive event supporting Ukraine in the intent to return to the market. We expect Ukraine to issue Eurobonds this fall after the finalization of the IMF review. Ukraine’s economy grew by 2.4% yoy in Q2 after +2.5% yoy in Q1, whereas in seasonally adjusted terms growth amounted to 0.6% qoq. This has been better than we had anticipated. Growth has likely been driven by private household demand, but also investment dynamics improved considerably. We estimate economic growth of at least 1.5% yoy in 2017, with upside risks to this forecast. Industrial production declined by 2.6% yoy in July owing to a downturn in the mining and energy sector, while the expansion of retail sales slowed down – from 9% yoy in June to 6.8% yoy in July. In July, the growth of consumer price index (CPI) slowed down to 0.2% mom from 1.6% mom, but due to the base effect, inflation accelerated from 15.6% yoy to 15.9% yoy. UAH strengthening persisted in most of August against the backdrop of significant tax payments that reduced LCY liquidity and forced exporters to sell more FCY. Nevertheless, most recently devaluation pressures emerged. We remain cautious, and keep our year-end USD/UAH forecast at 28.00 (eop) for the time being. Meanwhile, the liberalization of the FX market by removing administrative measures kept going.

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Pleasenotetherisknotificationsandexplanationsattheendofthisdocument
August 2017
Ukraine: Sovereign ratings
LCYrating S&P Moody's Fitch
Long-term B- Caa2 B-
Short-term B n.a. n.a.
Outlook Stable Positive Stable
FCYrating
Long-term B- Caa2 B-
Short-term B n.a. B
Outlook Stable Positive Stable
Latestreview Dec-16 Aug-17 Apr-17
Source: Thomson Reuters, RBI/Raiffeisen RESEARCH
Ukraine: Key economic figures and forecasts
Real Sector 2013 2014 2015 2016 2017e 2018f
GDP (UAH bn) 1,465 1,587 1,989 2,383 2,808 3,110
GDP (% yoy) 0.0 -6.6 -9.8 2.3 1.5 3.0
Domestic demand (% yoy) 1.7 -11.6 -12.2 8.2 2.4 0.4
Terms of trade (% yoy) 2.1 2.1 -2.1 1.2 0.5 4.4
CPI (avg, % yoy) -0.3 12.1 48.7 13.9 12.0 7.4
CPI (eop, % yoy) 0.5 24.9 43.3 12.4 9.5 6.0
PPI (eop, % yoy) 1.7 31.8 25.4 35.7 13.6 3.5
Real disposable income (% yoy) 5.3 -8.4 -22.3 0.3 n/a n/a
ExternalSector
C/A balance (% of GDP) -9.2 -3.5 -0.2 -3.6 -4.1 -3.6
Goods export (% yoy) -8.3 -14.5 -29.9 -5.2 11.6 9.5
Goods import (% yoy) -5.8 -29.0 -32.6 4.4 11.8 3.6
FDI (USD bn) 4.1 0.3 3.0 3.4 1.5 3.0
Total external debt (% of GDP) 79.1 95.7 131.7 121.7 114.5 108.8
Gross FX reserves (USD bn) 20.4 7.5 13.3 15.5 20.0 22.0
MonetarySector
USD/UAH (eop) 8.24 15.82 24.03 27.10 28.00 28.50
FiscalSector
Central state deficit (% of GDP) -4.4 -4.9 -2.3 -3.0 -3.2 -2.7
Public debt (% of GDP) 40.7 52.9 72.6 76.1 72.8 65.3
Source: State Statistics Service, National Bank of Ukraine, Ministry of Finance, RBI/Raiffeisen RESEARCH
Highlights
 Given the expectation of improved debt dynamics on the back of structural
reforms, Moody’s has upgraded Ukraine’s sovereign rating from Caa3 to Caa2
and changed the outlook to “positive” from “stable”. The rating change is a
positive event supporting Ukraine in the intent to return to the market. We expect
Ukraine to issue Eurobonds this fall after the finalization of the IMF review.
 Ukraine’s economy grew by 2.4% yoy in Q2 after +2.5% yoy in Q1, whereas
in seasonally adjusted terms growth amounted to 0.6% qoq. This has been better
than we had anticipated. Growth has likely been driven by private household
demand, but also investment dynamics improved considerably. We estimate
economic growth of at least 1.5% yoy in 2017, with upside risks to this forecast.
 Industrial production declined by 2.6% yoy in July owing to a downturn in the
mining and energy sector, while the expansion of retail sales slowed down –
from 9% yoy in June to 6.8% yoy in July. In July, the growth of consumer price
index (CPI) slowed down to 0.2% mom from 1.6% mom, but due to the base
effect, inflation accelerated from 15.6% yoy to 15.9% yoy.
 UAH strengthening persisted in most of August against the backdrop of
significant tax payments that reduced LCY liquidity and forced exporters to sell
more FCY. Nevertheless, most recently devaluation pressures emerged. We
remain cautious, and keep our year-end USD/UAH forecast at 28.00 (eop) for
the time being. Meanwhile, the liberalization of the FX market by removing
administrative measures kept going.
Financial Analysts
Sergii Drobot, Raiffeisen Bank Aval, Kyiv
Ukraine Economist
+380 44 5905621
sergii.drobot@aval.ua
Editor:
Andreas Schwabe, CFA, RBI Vienna
Senior Economist CEE
+43 1 71707 1389
andreas.schwabe@rbinternational.com
Source: State Statistics Service, RBI/Raiffeisen RESEARCH
GDP growth and inflation
-50
-25
0
25
50
-15
-10
-5
0
5
10
15
GDP (% yoy) Inflation (eop, % yoy), r.h.s.

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Pleasenotetherisknotificationsandexplanationsattheendofthisdocument
Ukraine
Economic Policy
On 25 August, the rating agency Moody’s has upgraded Ukraine’s
sovereign rating from Caa3 to Caa2 and changed the outlook to
“positive” from “stable”. The update was based on the expected improvement
of government debt dynamics on the back of significant structural reforms and
the strengthening of Ukraine’s external position. The last time the agency
improved Ukraine’s rating from Ca (negative) to Caa3 (stable) on 19
November 2015 after the finalization of restructuring of USD 15 bn debt.
Despite the fact that this is still much below investment grade, we consider the
rating change as a positive event given the intention of Ukraine to return to the
market of foreign borrowings, i.e. issue new Eurobonds. Moreover, a recent
improvement of macroeconomic and foreign exchange forecasts by some
investment banks is also beneficial for Ukrainian assets. Yield on Ukraine’s
Eurobonds dropped to the minimal value after the restructuring in late-2015.
Thus, we believe that the government will issue Eurobonds this
fall, right after approval of the pension reform and finalization
of the IMF review.
Real Sector
According to the preliminary GDP estimate, Ukraine’s economy grew by
2.4% yoy in Q2 after +2.5% yoy in Q1, whereas in seasonally adjusted
terms economy improved by 0.6% qoq. This has been more than we had
expected, as we anticipated a bigger negative impact from the Donbas
blockade. Since detailed statistics are yet not available, we have to speculate
for possible growth drivers. On the income side, we estimate a 8.6% yoy
growth of retail sales in Q2, while construction improved by about 21.1%
yoy. On the other hand, mining declined by 5.4% yoy due to the economic
blockade of Donbas. Regarding the expenditures side of GDP, given the real
wage growth by 20% yoy in Q2, household consumption likely has improved
significantly. Moreover, construction dynamics and growing investment
demand indicate further improvement of investment dynamics. We expect a
gradual slowdown of GDP growth by the end of the year on the back of base
effect (GDP hiked by 2.3% yoy in Q3 2016 and by 4.8% yoy in Q4 2016).
Thereby, we estimate economic growth of at least 1.5% yoy in 2017, with
upside risks to this forecast.
Industrial production declined by 2.6% yoy in July owing to a
downturn in the mining and energy sector. Comparing with June, industrial
output was lower by 1.3% mom. Production dynamics in mining deteriorated
sharply from +0.7% yoy in June to -9.4% yoy (-3.2% mom). Iron ores mining
suffered most (-26.8% yoy) from Donbas’ blockade and the decline in
production by state mines. Hence, iron ores mining contracted by 7.7% yoy.
Oil and gas extraction felt by 1.1% yoy. Despite the growth in manufacturing
production by 2.5% compared with July 2016, there was a decline by 1.3%
in mom terms. Recession in coke production deepened from -4.2% yoy to -
11.6% yoy reflecting lower coal extraction. Metallurgical production dropped
by 4.9% yoy after 1.8% yoy growth observed the previous month. Increase of
food production slowed down from 4.3% yoy to 0.4% yoy. The only sector
that demonstrated an improvement in July was chemical industry – from +1%
yoy to +26.7% yoy. Meanwhile, output of the energy sector plunged by
11.9% yoy in July (-9.6% yoy in June). In Jan-Jul, industrial production felt by
0.7% yoy, while there was growth by 2.3% yoy a year ago.
Source: Moody’s, RBI/Raiffeisen RESEARCH
Moody’s: Long-term FCY Sovereign Rating
Caa2
Caa3
Ca
Caa3
Caa2
Caa1
B3
B2
B1B1
B2
Caa1
B3
B2
Feb-98 Nov-00 Jul-03 Apr-06 Jan-09 Oct-11 Jul-14 Apr-17
Investment Grade (Baa3 and above)
* UKRAIN 7 ¾ 09/01/27
Source: Bloomberg, RBI/Raiffeisen RESEARCH
10 year yield of Ukrainian Eurobond (%)*
7
8
9
10
11
Source: State Statistics Service, RBI/Raiffeisen RESEARCH
GDP dynamics
-20
-15
-10
-5
0
5
10
2Q2013 2Q2014 2Q2015 2Q2016 2Q2017
GDP growth (% yoy) GDP growth (% qoq, s.a.)

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Ukraine
Expansion of retail sales continued to slow down – from 9% yoy in June to
6.8% yoy in July. However, compared with the previous month, trade
dynamics improved by 6.7% mom. Cumulatively, regarding the first seven
months of the year, sales rose by 8% yoy representing one of the major drivers
of GDP growth.
Inflation
In July, the growth of consumer price index (CPI) slowed down
to 0.2% mom from 1.6% mom, but due to the base effect, inflation
accelerated from 15.6% yoy to 15.9% yoy. Food prices continued to grow;
however, the increase decelerated to +0.3% mom (from +3.3% mom). In July,
prices for vegetables and fruits declined under the influence of the seasonal
factor (-9.2% mom and -1.4% mom respectively). Furthermore, eggs became
cheaper by 9% mom on the back of high supply. By contrast, meat prices
increased by 5.1% mom resulting in an overall growth of food prices. Prices
for alcohol and tobacco kept growing – by 1.6% mom (or +13.1% ytd).
Meanwhile, clothes became cheaper by 4.4% mom due to UAH strengthening
and seasonal sales. Growing tariffs for housing maintenance by 8.5% mom
boosted communal payments by 0.6% mom. Prices for gasoline and oil
declined by 1.1% mom.
Producer prices rose by 1.8% mom in July, while compared to July 2016, the
growth amounted to 23.3% yoy (slowed down from 26.3% yoy in June).
Increase of prices in the energy sector by 7% mom (due to hike in electricity
tariffs) was the major driver of producer price index (PPI) growth. Prices in
mining industry declined by 0.2% mom. Prices in coal mining and oil/gas
extraction went up by 0.5% mom, while iron ores mining showed a price
reduction by 1.3% mom. Manufacturing prices grew by 0.2% mom in July.
Balance of Payments
In June, the Current Account (C/A) deficit widened from USD 180
mn to USD 518 mn on the back of growing trade balance deficit and high
dividend expropriation (USD 111 mn deficit of preliminary incomes). Food
exports slow down from +30.2% yoy to +10.7% yoy and caused a
deterioration of goods exports dynamics to +13.6% yoy (from +22.5% yoy in
May). Meanwhile, exports of mineral products went up by 15.1% yoy, but
there was a slightly higher growth rate in May (+18.7% yoy). Imports
dynamics deteriorated as well, but imports’ growth rate outstripped the growth
of exports. The increase of imports slowed down from 41.1% yoy to 30.1%
yoy. Imports of mineral products were still high (+78.1% yoy) and that was
associated with the higher gas supply and coal purchases. Strong demand
from the agricultural sector side boosted imports of mineral products (+24.1%
yoy) and machinery (+41.3% yoy) in June.
The financial account posted a surplus of USD 825 mn. FDI inflow sharply
improved in June (USD 630 mn), but the major share (64%) was directed to
the banking sector via restructuring of debt to parent structure into authorized
capital of foreign banks. Cash FCY outside the banking system continued to
shrink significantly – by USD 553 mn. As a result, Balance of Payments (BoP)
recorded a surplus of USD 306 mn in June.
For the first six month of 2017, the C/A deficit grew to USD 1.6
bn versus USD 1 bn in the same period last year. Exports and
imports were growing at a high rate – by 24.8% yoy and by 24.3% yoy
respectively. By contrast, financial account accumulated a surplus of USD 2.6Source: National Bank of Ukraine, RBI/Raiffeisen RESEARCH
Balance of Payments (USD bn)
-2
-1
0
1
2
Current Account Financial Account
Capital Account Balance of Payments
Source: State Statistics Service, RBI/Raiffeisen RESEARCH
Inflation (% yoy)
-10
0
10
20
30
40
50
60
70
CPI Food prices PPI
Source: State Statistics Service, RBI/Raiffeisen RESEARCH
Industrial output growth by sector (% yoy)
2.3
0.4
3.8
0.3
1.2
2.3
0.9
15.5
1.1
5.7
9.3
9.4
0.0
-0.7
-6.5
3.5
-6.3
4.6
7.3
3.5-17.6
1.4
1.2
7.2
-3.0
7.7
-20 -10 0 10 20
Industrial production
Mining
Manufacuring (all)
Utilities
of manufacturing:
Food
Light industry
Woodwork and paper
Coke, refined products
Chemical
Pharmaceutical products
Rubber, plastic and mineral…
Metallurgy
Machine building
Jan-Jul 2016 to Jan-Jul 2015 Jan-Jul 2017 to Jan-Jul 2016

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Ukraine
bn owing to FDI inflow (USD 1.2 bn), reduction of FCY outside the banking
system (USD 1.4 bn) and external financial support. In Jan-Jun, the BoP
showed a surplus of USD 1 bn.
Monetary Policy and Exchange Rate
UAH strengthening persisted in August against the backdrop of
significant tax payments that reduced LCY liquidity and forced
exporters to sell more FCY. As a result, USD/UAH fell below 25.50 in
late-August. Nevertheless, in the last two days of the month, USD/UAH tended
to the level of 25.70 owing to growth of devaluation expectations across the
exporters due to Labor Day in US (4 September) and increase in FCY
purchases for dividend expropriation in September. The regulator managed to
attract USD 223.3 mn to reserves via FX auctions, but sold USD 44.3 mn on
31 August. Despite the positive development of the FX market, we remain
cautious, and kept our USD/UAH forecast at 28.00 (eop) for the time being.
Across the risks, we see traditional outburst of UAH liquidity by the end of the
year and after the increase in pensions. Moreover, there is a lack of diversity
in exports (food and metallurgical products occupy about 70% of total exports)
which means that Ukraine is quite vulnerable to global price volatility. Finally,
the seasonal growth of the trade balance deficit will increase pressure in the
FX market in late-2017.
In July, gross international reserves declined by USD 176 mn to
USD 17.8 bn. The outflow was due to a significant debt repayment of FCY
local government bonds (USD 509.9 mn). On the other hand, reserves
received USD 157.9 mn from the placement of local bonds and another USD
29.8 mn from interventions.
The liberalization of the FX market by removing administrative measures kept
going. The NBU increased the limit on the amount of daily FX purchases for
banks from 0.5% to 1% of the regulatory capital. Thus, banks became more
flexible in managing their FX position. For banks’ clients, the regulator
canceled limit (UAH 250,000 in equivalent per day) on withdrawal of FCY
from current and deposit accounts through cashier’s offices and ATMs.
According to the National Bank, there will be no substantial effect on the FX
market stability, while this step will support clients’ confidence to the banking
sector.
Significant quarterly tax payments depleted banking sector
liquidity in August. As a result, Certificate of Deposits (CDs) plunged by
more than UAH 20 bn to UAH 32 bn, which is the lowest volume for this year.
Given the NBU requirements, there were no significant changes of the
balances on correspondent accounts – UAH 40-50 bn. Generally, we currently
observe dynamics that is similar to the previous year – significant reduction in
summer and restoration by the very end of the year on the back of activation
of budget spending. Meanwhile, cost of resources greatly increased. The
index of interbank rates (overnight) hiked by more than 50 bp to 11.50-
11.60%.
Banking Sector
Deposit portfolio continued to grow (+0.5% mom in July) driven by the
corporate sector. Owing to the seasonal factor, companies’ deposits in UAH
increased by 2% mom and in FCY by 5.7% mom. By contrast, households
slightly decreased their LCY savings in banks (-1% mom), while FCY deposits
remained at a level of previous month.
Source: National Bank of Ukraine, RBI/Raiffeisen RESEARCH
Official USD/UAH rate
23
24
24
25
25
26
26
27
27
28
28
Source: National Bank of Ukraine, RBI/Raiffeisen RESEARCH
Gross international reserves
0
2
4
6
8
10
12
14
16
18
-3,500
-3,000
-2,500
-2,000
-1,500
-1,000
-500
0
500
1,000
USD mn USD bn
NBU interventions/auctions Gross FX reserves, r.h.s.
Source: National Bank of Ukraine, RBI/Raiffeisen RESEARCH
Gross international reserves
0%
5%
10%
15%
20%
25%
0
25
50
75
100
125
150
175
UAH bn
CDs
Balances on correspondent accounts
Index of interbank rates (overnight), r.h.s.

5. 5
Pleasenotetherisknotificationsandexplanationsattheendofthisdocument
Ukraine
UAH loans kept growing in July on the back of interest rates decline (on
average interest rates declined by 0.9 pp mom or by 2.4 pp eop), revival of
business activity and growth of real wage (+19.7% yoy in H1’17). CO LCY
loans went up by 1.8% mom and PI loans – by 1.6% mom. On the other
hand, FCY debt shrunk in July – by 1.6% mom of CO sector and by 1.4%
mom of households.
Banking sector losses were reduced from UAH 1.7 bn in Jan-Jun
to just UAH 0.2 bn in Jan-Jul. The improvement was due to ongoing
growth of interest incomes as well as no significant provision spending in July.
Recall, banking sector profit amounted to UAH 6.9 bn in Jan-May, but
significant provisioning by two large banks in June put the banking sector’s
financial result to the negative zone.

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Ukraine
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and neither shall this report nor anything contained herein form the basis of, or be relied upon in connection with, any contract or commitment
whatsoever. This report provides general information only. In Canada it may only be distributed to persons who are resident in Canada and who,
by virtue of their exemption from the prospectus requirements of the applicable provincial or territorial securities laws, are entitled to conduct trades
in the securities described herein.
EU REGULATION NO 833/2014 CONCERNING RESTRICTIVE MEASURES IN VIEW OF RUSSIA’S ACTIONS DESTABILISING THE SITUATION
IN UKRAINE
Please note that research is done and recommendations are given only in respect of financial instruments which are not affected by the sanctions
under EU regulation no 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine, as amended
from time to time, i.e. financial instruments which have been issued before 1 August 2014.
We wish to call to your attention that the acquisition of financial instruments with a term exceeding 30 days issued after 31 July 2014 is prohibited
under EU regulation no 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine, as amended
from time to time. No opinion is given with respect to such prohibited financial instruments.
INFORMATION REGARDING THE PRINCIPALITY OF LIECHTENSTEIN: COMMISSION DIRECTIVE 2003/125/EC of 22 December 2003
implementing Directive 2003/6/EC of the European Parliament and of the Council as regards the fair presentation of investment recommendations
and the disclosure of conflicts of interest has been incorporated into national law in the Principality of Liechtenstein by the Finanzanalyse-
Marktmissbrauchs-Verordnung.
If any term of this Disclaimer is found to be illegal, invalid or unenforceable under any applicable law, such term shall, insofar as it is severable
from the remaining terms, be deemed omitted from this Disclaimer. It shall in no way affect the legality, validity or enforceability of the remaining
terms.

8. 8
Pleasenotetherisknotificationsandexplanationsattheendofthisdocument
Ukraine
Acknowledgements
This report was prepared by Raiffeisen Bank Aval on 4 September 2017
Raiffeisen Bank Aval
9, Leskova Str., 01011 Kyiv, Ukraine
Tel. +380 44 490 8888
Fax +380 44 285 32 31
Call center: 0 800 500 500 (free within Ukraine)
www.aval.ua
Market Analysis
Sergii Drobot (+380 44 590 5621)
Treasury
Head: Vladimir Kravchenko (+380 44 4908808)
FX, MM: Yuriy Grinenko (+380 44 4908988), Olexandr Varenytsia (+380 44 4954227), Nikolay Vysotsky (+380 44
4954226)
Treasury Sales: Marina Lukashenko (+380 44 4954202), Alexander Korenev (+380 44 4954200), Tatiana Kornienko (+380
44 4954201)
Securities: Oleg Klimas (+380 44 4908939), Alexey Evdokimov (+380 44 4954206), Daria Shatskykh (+380 44 4954204)
Multinational Corporate Customers
Head: Andreas Kettlgruber (+380 44 4954110)
Relationship Managers: Anna Prydybailo (+380 44 2309981), Lesia Byba (+380 44 4954271)
Raiffeisen Bank International CEE Research Team
GLOBAL HEAD OF RESEARCH, RBI
Peter Brezinschek (1517, FA*)
HEAD OF ECONOMICS / FIXED INCOME
/FX RESEARCH, RBI VIENNA
Gunter Deuber (5707, FA*)
CEE MACRO, FX AND FIXED INCOME,
RBI VIENNA
Wolfgang Ernst (FX Strategist, 1500, FA*)
Stephan Imre (FI Strategist, 6757, FA*)
Patrick Krizan (FI Strategist, 5644, FA*)
Matthias Reith (Economist, 6741, FA*)
Elena Romanova (Banking sector, 1378, FA*)
Andreas Schwabe (Economist, 1389, FA*)
Gintaras Shlizyhus (FI Strategist, 1343, FA*)
CEE CREDIT COMPANY RESEARCH, RBI
VIENNA
Jörg Bayer (Head, 1909, FA*)
Martin Kutny (Corporates, 2013, FA*)
Ruslan Gadeev (RU Financials, 2216, FA*)
RBI contacts: +43 1 71707 (+ extension);
[name].[surname]@rbinternational.com
*FA: Financial Analyst
RBI NETWORK BANK CEE RESEARCH
CENTRAL EUROPE (CE)
CZ: Helena Horska (+420 234 40 1413,
FA*), Raiffeisenbank a.s., Prague
HU: Zoltán Török (+36 1 484 4843, FA*),
Raiffeisen Bank Zrt., Budapest
PL: Dorota Strauch (+48 22 585 2461, FA*),
Raiffeisen Polbank, Warsaw
SK: Robert Prega (+421 2 5919 1303, FA*),
Tatra banka, a.s., Bratislava
SOUTH EAST EUROPE (SEE)
AL: Dritan Baholli (+355 4 2275504-2504,
FA*), Raiffeisen Bank Sh.a., Tirana
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BG: Emil Kalchev (+359 2 91985 101, FA*),
Raiffeisenbank (Bulgaria, FA*) Sole-owned
JSC, Sofia
HR: Zrinka Zivkovic-Matijevic (+385 1 6174
338, FA*), Raiffeisenbank Austria d.d.,
Zagreb
RO: Ionut Dumitro (+40-730-222-953, FA*),
Raiffeisen Bank S.A., Bucharest
RS: Ljiljana Grubic (+381 11 2207178, FA*),
Raiffeisenbank a.d., Belgrade
EASTERN EUROPE (EE)
BY: Natalya Chernogorova +375 17 289
9231, FA*), Priorbank JSC, Minsk
RU: Anastasia Baykova (+7 495 225 9114,
FA*), AO Raiffeisenbank Austria, Moscow
UA: Sergii Drobot (+380 44 5905621, FA*),
Raiffeisen Bank Aval , Kyiv
COMPANY EQUITY RESEARCH:
RAIFFEISEN CENTROBANK AG, VIENNA
Bernd Maurer (Head, +43 1 51520-706,
FA*)