After several years of economic and political crisis, radical reforms at the National Bank of Ukraine are helping the country that was once known as the “breadbasket of Europe” to grow again.
Since taking office as deputy governor of Ukraine’s central bank in 2015 Dmytro Sologub has worked towards creating an advanced “modern institution” devoid of corruption, inefficiencies, and unnecessary personnel. “Deutsche Bank could learn from us,” he said.
Corruption in the upper echelons of decision making has been a pervasive problem in Ukraine, and no less in the central bank. But Sologub believes that by creating a streamlined institution with a proper pay structure, this can be stamped out. In the last year and a half, headcount has been reduced from 12,000 people to 5,200.
“Low pay creates adverse selection problems, and it leads to corruption because people have to have other sources of income,” he said. “Ukraine is not unique in this but endemic corruption is penetrating a lot of activities and the central bank is trying to combat this with transparent policy.”
Ukraine is becoming a more transparent place to do business, he said, noting that the energy sector is now receiving more investment because of it. Sologub looks to Romania as a role model regarding its efforts to eliminate corruption, and its ability to create a conducive business environment.
While he acknowledges that the National Bank of Ukraine has ground to make up, he is already looking ahead to how Blockchain and a cashless economy could improve Ukraine’s financial system. “In three to four years we will look very different,” he said.
Remarkably, the central bank has wrestled back sky rocketing inflation which it has managed to reduce from 43% last year to 12% this year. The target over a three year period is 5%.
“Our main aim in 2017 is to preserve financial stability, and help economic growth to recover to 2%-3%. It was a very severe crisis and we are slowly emerging from it. But we are realistic that you can’t lose part of your territory and your biggest trading partner and expect full recovery.” Exports from Ukraine to Russia have fallen to 7% from around 30%.
In February 2015, Ukraine floated the hryvnia, which plunged sharply. Sologub says he faces a large ideological problem because goods providers are too focused on exchange rates, and view any devaluation against the dollar as a direct reduction in spending power.
Sologub oversaw a radical cleaning up of Ukraine’s banking system. Law enforcement agencies have created a problem for the sector due to corrupt officials enabling delays, and bribery. He terms the first stage “the clean-up”. Over the past year or so, some 83 banks were closed, leaving around 100. “Ninety percent of those were really fraudulent,” he said.