Page 4 - UKRRptJul20
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1.0 Executive summary
Ukraine was making progress in dealing with its problems in June, but by the end of the month everything started to fall apart again.
A second wave of coronavirus (COVID-19) epidemic took hold as a result of the easing of restrictions and the infection rate surged to new record highs. As June came to an end it looked like the authorities were going to re-impose restrictions which will be another blow to the nascent economic recovery.
The major event of June was the completion of the $5bn Stand By Agreement (SBA) agreed on June 9 the International Monetary Fund (IMF) and the receipt of the first $2.1bn tranche. The deal was immediately followed by another €500mn transfer from the EU as part of its macro-support package.
However, on July 1 governor of the National Bank of Ukraine (NBU) Yakiv Smolii quit throwing the whole programme into doubt. The Ministry of Finance had closed the order book on a $1.75bn 12-year Eurobond only hours earlier which was immediately cancelled and it is already clear that the IMF will not make any more transfers until it is clear who Smolii’s replacement is and that he or she will stick to the National Bank of Ukraine (NBU) prudent policies.
Smolii left citing “sustained political pressure,” which is almost certainly a reference to running attacks on the NBU by oligarch Ihor Kolomoisky, although no one in the Rada bothered to ask Smolii to clarify. The ink on the IMF deal was barely dry before two deputies from the Servant of the People (SOTP) fraction submitted a bill that would give the government more powers over NBU and also partly dismantle the domestic Ukraine’s Ministry of Finance hryvnia-denominated OVDP treasury bills (OVDP) market.
This bills is seen as yet another attempt by Kolomoisky to undermine the independence of the NBU.
What is doubly worrying is that in the vote on accepting Smolii’s resignation the entire SOTP fraction voted for the motion and was supported by the pro-Russian opposition fraction headed by Viktor Medvechuk, a friend of Russian President Vladimir Putin’s and a business associate of Kolomoisky. Former President Petro Poroshenko’s fraction and that of opposition leader, former Prime Minister and head of Batkivshchyna (Fatherland) party Yulia Tymoshenko opposed it.
Smolii is highly regarded by Ukraine’s donors and international investors, so if SOTP really is the party of radical reform then its decision to eject what is one of the last remaining reformers from government is more than a little surprising.
The whole fiasco now threatens Ukraine’s funding plans for the year and could precipitate a fresh crisis. Ukraine has to repay a total of $17bn this year and $22bn next year and only has $28bn as reserves.
The new IMF deal should provide a fresh $5bn and that will also unlock around $5bn of money from the other International Financial Institutions (IFIs). In addition the Ministry of Finance could count on raising some $3bn-$4bn on the international capital markets and some $4bn-$5bn on the domestic market.
4 UKRAINE Country Report July 2020 www.intellinews.com
