The policy papers are the joint product of the German Advisory Group for Economic Reforms in Ukraine and the IER aimed at providing economic policy recommendations to Ukraine’s policy makers. The recommendations are based on the careful analysis of Ukraine’s situation, state-of-the-art economic theory, and best international practices. The papers are available for policy makers and – with some time lag – for general public.
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The National Bank of Ukraine (NBU) is currently in a transition phase towards Inflation Targeting (IT). While this fundamental change in its monetary policy strategy is highly commendable, it nevertheless requires significant changes in the governance framework.
Ukraine faces immense economic and political challenges. Significant twin deficits in the current and fiscal accounts and significant FX debt repayments come at a time when the access to foreign capital markets is restricted, and FX reserves are at multi-year lows, significantly below any commonly accepted reserve coverage ratio. In this situation, external financial support is clearly needed, and the current negotiations with the IMF is the right approach. During program discussions, the issue of a possible public debt restructuring via private sector involvement (PSI) could become an issue. A crucial aspect in this respect is the right diagnosis: Does Ukraine suffer from a liquidity and/or a solvency problem? Difficult to clearly separate both issues; to some extent also intertwined. This policy briefing attempts to contribute to the current discussion
Comparison of access to external finance by industrial companies under two scenarios
As we argue in our previous Policy Briefing PB/07/2012, the Eurozone crisis that started in spring 2010 in Greece has three components: public debt crisis, banking crisis, economic growth crisis. Apart from affecting Eurozone countries, the crisis also poses a major and on-going challenge to neighbouring countries, as economic and financial linkages are strong. Each component of the crisis has thus potential implications for Ukraine, which has strong links to the EU and the Eurozone. This policy briefing analyses and assesses these linkages in more detail.
Central banks usually hold official foreign exchange reserves (“FX reserves”) as a precautionary liquidity buffer to decrease the adverse impact of negative external shocks in times of financial stress or crises. A resulting question for the authorities is the appropriate level of such FX reserve holdings, as such holdings are usually associated with benefits and costs.
There are good economic reasons why the current foreign exchange policy of Ukraine should be changed towards a more flexible regime. Under current conditions, such a change will most probably involve certain depreciation, and affect a number of economic variables in turn. Specifically, policy makers are concerned about the impact on the import of capital and high tech goods, which play a major role for investment and thus contribute to the modernisation of Ukraine’s often outdated capital stock.
The key question of this paper is how the performance of the credit reporting system in Ukraine could be improved. In answering this question, we concentrate on the private bureaus active in Ukraine and in a first step identify the main impediments, data fragmentation and lack of data.
Adequate access to finance is for agricultural enterprises in Ukraine of crucial importance. Empirical evidence suggests though that this access is often severely constrained, especially for small and medium-sized agricultural enterprises. Lending to agriculture is subject to a number of specific sectoral risks, and not all banks fully understand these risks.
From 2000 to 2008, the National Bank of Ukraine (NBU) pegged the Hryvnia to the US dollar. In the autumn 2008 the international financial crisis hit Ukraine and the currency was let to float, a move which implied a sizeable devaluation. During the course of 2009 the NBU allowed for some currency flexibility. However, since January 2010 the Hryvnia has been de facto fixed once again to the US dollar at a level of around 8.00 UAH/USD.