The National Bank of Ukraine, which previously included certain terms of “significant improvement in the security situation” in its basic macroeconomic forecast scenario, has abandoned this approach and instead published an alternative scenario in its April inflation report, the main difference of which is slower economic growth in 2025 with a larger budget deficit, weaker hryvnia and reduced international reserves.
“The alternative scenario is based on the assumption of higher security risks and, accordingly, a slower return of the economy to normal conditions over the forecast horizon. Under this scenario, Ukraine’s economy will recover more slowly in 2025 compared to the baseline scenario. However, the inflation trajectory will differ slightly,” the NBU said in the report.
As reported, in the first inflation reports for July and October 2022 after the pause caused by the Russian invasion, the NBU, in addition to the baseline, provided an alternative scenario with a longer period of war, but later abandoned it, although the IMF continued to provide such a scenario.
In the renewed alternative scenario in the April inflation report this year, GDP growth in 2025, in particular, will accelerate to only 3.3% from 3% this year, while the baseline scenario envisages economic growth of 5.3% next year.
At the same time, in 2026, the baseline scenario envisages a slowdown to 4.5%, while the alternative scenario envisages an acceleration to 5.6%.
According to the NBU, the economic recovery in the alternative scenario will be more fragile, even with more significant budget deficits. “Increased imbalances in the labor market amid a worse migration situation than in the baseline scenario will restrain consumer and business activity, and increase pressure on business labor costs. The recovery of industrial production from the damage and losses caused under this scenario will be slower, as will the recovery of sown areas,” the NBU said.
He added that the energy deficit will also have a negative impact on economic activity, which, however, is assumed to remain unchanged compared to the baseline scenario – about 5% in 2024-2025.
“Ensuring macro-financial stability will require somewhat higher volumes of international assistance and, at the same time, significantly higher spending of the NBU reserves to maintain a controlled situation in the foreign exchange market and moderate inflation,” the NBU emphasized.
According to the document, the main factor supporting the economy will be the continued maintenance of a softer fiscal policy than in the baseline scenario. The budget deficit, excluding grants in revenues, will amount to 18% of GDP in 2025 (13.5% of GDP in the baseline) and 12% of GDP in 2026 (7.5% of GDP in the baseline). The government will continue to spend heavily on infrastructure, social welfare, defense, and security. Their impact on the budget deficit will be partially offset by additional measures to mobilize budget revenues at 3.5% of GDP, the NBU added.
According to its forecasts, large budget deficits in 2025-2026 will be financed by both additional domestic and external borrowings. In particular, the alternative scenario envisages international assistance of $28.7 billion in 2025 and $18.5 billion in 2026, compared to $25.1 billion and $12.6 billion in the baseline scenario, respectively. “As a result, this will make it possible not to resort to monetary financing of the budget,” the NBU said.
According to the alternative scenario, budget deficits will lead to an increase in public and publicly guaranteed debt, which will approach 100% of GDP at the end of the forecast period.
The NBU added that the inflation trajectory will be similar to the baseline scenario, but it will require more significant spending of international reserves: consumer inflation will temporarily accelerate to 8.6% at the end of 2024, followed by a decline to 5.5% at the end of 2025, compared to 8.2% and 6.0% in the baseline scenario, respectively.
To cover the larger structural deficit in the foreign exchange market, the NBU will spend more of its international reserves. Therefore, despite the higher external financial assistance, the reserves will remain almost unchanged in 2024 and will decrease over 2025-2026 to $33 billion, while in the baseline scenario they will amount to $39.3 billion at the end of 2026.
“At the same time, such volumes of reserves will allow us to continue to gradually ease currency restrictions,” the NBU said.
As reported, Ukraine’s GDP, according to the State Statistics Service, grew by 5.3% in 2023 after a 28.8% decline in 2022.
Earlier, Experts Club and Maxim Urakin released a video analysis of how the GDP of the world’s countries has changed in recent years, more detailed video analysis is available here – https://youtu.be/w5fF_GYyrIc?si=BsZmIUERHSBJrO_3
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Ukraine’s international reserves in March, according to preliminary estimates of the National Bank of Ukraine (NBU), increased by 18%, or $6.7 billion – to $43 billion 762.7 million.
“Such dynamics is due to significant (more than $9 billion) volumes of receipts from international partners, which exceeded the net sale of currency by the National Bank and the country’s debt payments in foreign currency,” the NBU website explained on Friday.
In addition, the National Bank noted that $9.32 billion was transferred to foreign currency accounts of the Cabinet of Ministers in March, while $363.5 million was paid for servicing and repayment of the state debt.
As the regulator noted, Ukraine also paid $728.5m to the International Monetary Fund.
Among other factors determining the volume of reserves, the NBU named operations on the foreign exchange market: in March, the regulator’s net sale of foreign currency amounted to $1.79bn, which is 18.5% more than in the previous month.
According to balance sheet data, the NBU sold $1.81 bln on the foreign exchange market and bought $25.9 mln in reserves.
The central bank also indicated that the current volume of reserves was positively affected by the revaluation of the value of financial instruments, adding $266.3 million.
“The current volume of international reserves provides funding for 5.8 months of future imports,” the regulator stated.
As reported, the NBU in January reduced the forecast of Ukraine’s international reserves at the end of 2024 to $40.4 billion from $44.7 billion and to $42.1 billion from $45 billion at the end of 2025. Earlier, Experts Club analytical center and Maxim Urakin released a video analysis of how the GDP of the world’s countries has changed in recent years, more detailed video analysis is available here – https://youtu.be/w5fF_GYyrIc?si=BsZmIUERHSBJrO_3 Subscribe to Experts Club YouTube channel here – https://www.youtube.com/@ExpertsClub
EXPERTS CLUB, GDP, International reserves of Ukraine, MACROECONOMICS, NATIONAL BANK OF UKRAINE, NBU, URAKIN
The National Bank of Ukraine (NBU) has amended the plan of on-site inspections on financial monitoring, compliance with currency and sanctions legislation for 2024, the regulator’s website reports.
Lombard Finance PE with the participation of ITM Market LLC and I-Company LLC was excluded from the plan of on-site inspections due to the revocation of the license to operate and Inter-Realty PE and Company was included.
According to the plan, on-site inspections of banks are scheduled for 2024: in the first quarter – JSC CB PrivatBank, JSC RVS Bank, in the second quarter – JSC OTP Bank, JSC Bank Credit Dnipro, in the third quarter – JSC Crystalbank, JSC JSB Radabank, in the fourth quarter – PJSC Bank Vostok.
Non-banking institutions: in the first quarter – FC Mont Blanc Finance LLC, FC Wei For Pei LLC, in the second quarter – Lombard Doncredit LLC Inter Realty and Company, OTP Leasing LLC, in the third quarter – Nadezhda Insurance Company, NovaPay LLC, in the fourth quarter – Credit Union, Avance Credit LLC, Ultra Alliance Insurance Company.
The report emphasizes that the plan of on-site inspections was drawn up on the basis of a risk-oriented approach, including taking into account the results of the risk assessment of banks and non-bank institutions.
The National Bank of Ukraine (NBU) has imposed penalties on TAScombank, as well as financial companies “Ap. Mi. Finance” and “Hertz” for a total amount of UAH 272 thousand, stated on the website of the regulator.
“TASkombank” was fined for UAH 170 thousand for providing the NBU with statistical reporting data in violation of the procedure for their formation, which led to repeated provision within six months of reporting data with insignificant errors.
Meanwhile, Ap. Mi. Finance” and “Hertz” were fined UAH 51 thousand each for late submission of reports: for December 2023 and January of the current year, respectively.
These decisions were made on the basis of the results of off-site monitoring within the framework of the payment infrastructure oversight function and came into force on March 25, 2024.
Violators are obliged to pay the fine within five business days from the date of receipt of the relevant decision of the regulator.
Ap. mi. Finance, Hertz, NATIONAL BANK, NBU, TASCOMBANK, UKRAINE
Net sale of dollars by the National Bank of Ukraine (NBU) rose from $133.7m, the lowest value in the last 11 months, to $262.6m this week, the regulator’s data show.
According to them, the sale of currency increased from $156.8 million to $263.0 million, while the purchase fell back to almost zero, although the National Bank managed to buy more than $50 million on the market in the previous two weeks after a long break.
The official hryvnia exchange rate weakened by almost 66 kop. – From 38.1410 UAH/$1 to $38.7998 UAH/$1 – the lowest level in the history of the national currency. At the same time, market participants note that the decline occurred with a relatively small volume of trading.
On the cash market, the hryvnia exchange rate followed the interbank rate, but with a smaller amplitude: a strong weakening in the first three days and relative stabilization at the end of the week. As a result, during the week it decreased by about 33 kop. – from UAH 38.53/$1 to UAH 38.86/$1. At the same time, according to the NBU, despite the weakening of the exchange rate in the first half of the week, the negative balance between the volume of foreign currency purchases and sales by the population decreased during these days: from $28.6 mln on Monday to $10.3 mln on Wednesday
At a press conference on March 14, representatives of the National Bank said that by the end of April they expect external financing in the amount of $10bn or more, which will allow to restore reserves, while before that Ukraine had received only $1.2bn since the beginning of the year.
At the same time, the NBU noted that such non-rhythmic external financing will not lead to any shocks on the currency market.
As reported, at the end of February, the NBU’s net sales fell to $1.50 billion from $2.53 billion in January, $3.55 billion in December and $2.45 billion in November.
However, in February, external support amounted to only about $0.8bn, so international reserves fell by 3.8% or $1.47bn to $37.05bn after falling by 4.9% or UAH $1.98bn in January.
The National Bank in January lowered its forecast for Ukraine’s international reserves at the end of 2024 to $40.4 billion from $44.7 billion.
The National Bank of Ukraine has approved the head of the board of the nationalized Sense Bank (Kiev), Oleksiy Stupak, selected earlier by the supervisory board of the financial institution for this position following a competition, the bank’s press service said on Monday.
“On February 15, 2024, the National Bank of Ukraine has agreed Oleksiy Stupak as chairman of the board of Sense Bank,” the release said.
As reported, Stupak started his career in 2002 in Pravex Bank, where he was responsible for working with corporate and VIP clients. He then held senior positions at Credit Agricole Bank from 2008.
In June 2019, he joined the Sence Bank team, assuming the position of Corporate Business Director, after which he became the supervisor of Corporate and Investment, SME, which he has been doing until now.
Former Sense Bank CEO Dmitry Kuzmin, who was appointed to this position during the bank’s nationalization at the end of July 2023, resigned by mutual agreement for personal reasons a few weeks after his appointment. Kuzmin’s deputy Yelena Zubchenko, who worked in the Ministry of Finance before the bank’s nationalization, was appointed acting head of the board.
According to the NBU, as of January 1, 2024, Sense Bank ranked 8th among 63 operating banks in Ukraine in terms of assets (UAH 131.2 billion). It was nationalized at the end of July 2023 under a specially adopted law as a systemically important bank with majority shareholders from Russia’s Alfa Group caught up in sanctions. At the same time, the state appointed an entirely new management board and supervisory board.
