The main task of the Government of Ukraine is to reduce the budget deficit and stabilize the hryvnia exchange rate
Russia continues the war against Ukraine and confirms that it wants not only to seize new territories, but also to physically destroy Ukrainians and Ukraine as a state. Brave Ukrainians, with the support of the civilized world, have been defending the country for 103 days, but the war is entering a protracted stage, so the authorities need to take measures to support the economy.
In the first three months of the war, budget expenditures were financed mainly through active financial assistance from Western countries. In May, the general budget deficit amounted to UAH 113.4 billion or $ 3.9 billion, and has reached UAH 270.8 billion since the beginning of the year.
Last week, the National Bank sold $ 826 million on the interbank market, and a week earlier - a record $ 1.4 billion since the start of the full-scale war. In total, in 2022, the National Bank sold $ 9.4 billion and € 1.8 billion from its own reserves and assistance, and acquired $ 1.8 billion and € 110 million.
The hryvnia exchange rate on the interbank market remained fixed at UAH 29.25 / $, while on the physical market and in commercial banks it strengthened to UAH 35-36 / $ after the restrictions introduced by the NBU in late May.
In May, Ukraine intensified its exports of agricultural and metallurgical products, which helped increase foreign exchange earnings. To further increase them, the Cabinet of Ministers has proposed to return duties and VAT on imported goods, including cars for personal use, and has already submitted a bill to the Verkhovna Rada. The National Bank, in addition, proposes to introduce additional fees for non-critical imports.
Last week, the National Bank raised the discount rate from 10% to 25% to stabilize the hryvnia exchange rate and curb inflation, but this will dramatically increase the cost of business loans and effectively halt the economic recovery.
According to the May forecast of the NBU, annual inflation in Ukraine in 2022 will reach 17%, while in Estonia it will be 20%, Lithuania - 18.5%, ie it will be almost the same as in countries where there is no war, indicating rising world prices due to Russian aggression. There is a negative example of Turkey, where due to ill-considered steps of the government inflation reached 73.5% in May, but in Ukraine the government and the National Bank must work together to restore the economy. The high discount rate will allow commercial banks to redirect funds to government bonds, which will guarantee 20-25% per annum, rather than lending to producers with high risks of non-repayment.
