The Ukrainian hryvna should be fully convertible within a year and a half, national bank deputy governor Oleksandr Savchenko said yesterday.
Legislation has been drafted and agreed by the National Bank of Ukraine and the government. Parliament is expected to approve it later this year, he told the Ukraine country presentation at the EBRD business forum. Savchenko added afterwards that politicians don’t see the measure as controversial and, once parliament resumes, it should be passed rapidly.
“Our philosophy is that, in such an unstable political situation, the currency must be stable. As soon as we see that a political consensus is emerging, we will move to a freer exchange rate.
“We are not going to keep the rate stable forever. We have told the business community to be ready for currency risk.”
On the Bank’s policy of using the dollar anchor rather than the euro or a currency basket, Savchenko said: “This is simple. Ninety per cent of our external turnover, including trade with the EU, is denominated in dollars.
“We are asking the government, and companies, to diversify into euros, roubles, or other currencies. We have looked at using roubles as a reserve currency.”
Deputy finance minister Andrei Kravets told the seminar that this year’s budget provides for Ukraine to borrow $1.2 billion on external markets, of which $300 million is expected to come from the World Bank and the rest from eurobonds. It will also borrow about $600 million on the domestic market.
Savchenko said the National Bank has asked the government to shift a larger share of its issuance into the hryvna.
The Bank has also given the EBRD permission to issue its first loan in hryvna, which it is expected to do next year. The EBRD will also start making corporate loans in the local currency.
Kravets said that, while the full effect of higher gas prices had not yet worked its way through the economy, growth had been surprisingly robust in dealing with them. The price rises were “like a good cold shower, and they have prepared us for prices linked to European levels. We have weathered it well.”
Energy efficiency projects, in which the EBRD has played a major part, were given prominence at the country presentation. Savchenko said that plans had been drawn up to privatize municipal housing services, where much gas and electric power is used inefficiently, within two years.
The $30 billion that would be required to modernize these services would have to be raised largely from the private sector.