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National Bank of Ukraine foreword

Ukraine (resized 230 x 150)
By EuroWeek Editor 1
15 Jun 2020

Ukraine entered the global economic crisis caused by the coronavirus pandemic in a much better shape than during the crises of 2008 and 2014. The ‘Great Lockdown’ is the first crisis in the history of Ukraine in which we haven’t observed the bankruptcy of banks, a spike in inflation, a catastrophic decline in international reserves, or long lines near ATMs. All of this is the result of consistent economic policy during previous years.


GBIFLast year, the NBU achieved its medium-term inflation target of 5% ± 1 pp., which the central bank announced in 2015. Consumer inflation slowed to 4.1% in 2019 from 9.8% in 2018. Inflation continues to decline in 2020, which allows the NBU to support the economy by easing monetary policy. Since the beginning of the year, the key policy rate already has been cut by 5.5 pp to 8%. 

Most of the easing took place in March-April as we took quick and effective actions in response to the pandemic and quarantine measures. The latter also included long-term refinancing for banks and other new tools to support the economy, as well as a series of steps to simplify banks’ access to NBU’s financing. Moreover, we still have room for further stimulus. 

Achieving low inflation would be impossible without the independent policy prerogatives of the NBU. Our monetary decisions have often left politicians dissatisfied — but at the same time, we have found understanding in the expert community and among citizens. We saw a steady decline in inflationary expectations of businesses, analysts and households. Public confidence in the NBU more than doubled during the tense March–April period, according to independent public surveys. 

The NBU also remained committed to a floating exchange rate. This helped Ukraine to avoid the accumulation of macroeconomic imbalances, which were typical for past crises. Today we have a moderate current account deficit. Last year, it was less than 3% of GDP (excluding money from the court victory over the Russian state company Gazprom). By comparison, before previous crises it was 2.5-3 times worse. Moreover, this year, according to our forecast, the current account deficit will be below 2%.

We also continued currency liberalisation. Around 40 restrictions on foreign exchange transactions were lifted in the last year. The NBU abolished the mandatory sale of currency for businesses, allowed citizens to buy currency online and cancelled all limits on the payment of dividends abroad, etc. We will continue our policy of liberalisation, taking into account the macroeconomic situation, implementation of the BEPS action plan and the quality of non-bank financial market regulation. 

International reserves are at a seven-year high. Today they exceed $26bn. Thus, we have a greater margin of safety than before the annexation of Crimea and the war in Donbass. This is enough both to service external liabilities and to conduct foreign exchange interventions to smooth exchange rate fluctuations. Thanks to cooperation with the IMF and other international partners, Ukraine’s international reserves will continue to grow, despite the period of peak payments on foreign debt.

The banking system today is not a burden for the economy, but rather its lifeline. Banks continue to support businesses rather than go bankrupt like a house of cards as in previous times. Reforms in the banking and energy sectors have reduced the burden on public finances. Today, banks and the Ukrainian energy giant Naftogaz do not need subsidies from the budget. On the contrary, they free up space for fiscal support of the economy in a difficult period.

These prerequisites make it possible to overcome the current crisis with fewer losses than before. Thanks to the prolonged period of macroeconomic stability in 2016–2019, the government and the NBU are able to pursue stimulus policies and to mitigate negative shocks. Due to quarantine restrictions to combat the pandemic and the global crisis, the Ukrainian economy in 2020 will decline by 5%, but will return to the growth of about 4% in the following years.

However, this is not the end of reforms — we have big plans. The strategy for Ukrainian financial sector development until 2025, approved at the beginning of the year, sets new ambitious goals. The NBU aims for growth in lending to small and medium-sized businesses, as well as mortgages, and development of export financing. We plan to increase the financial literacy of the population, strengthen consumer protection in both the banking and non-banking sectors, and ensure the free movement of capital. Ukraine shall and will become stronger and closer to Europe. 

By EuroWeek Editor 1
15 Jun 2020