Ukraine will no longer resort to “dangerous” monetary financing to finance its war against Russia, the governor of its central bank has said, adding that an “open conflict” with the government over the issue has been resolved.
Andriy Pyshnyy, the 48-year-old head of the National Bank of Ukraine, said in an interview with the Financial Times that it “created huge risks for macro-financial stability” when the bank was forced last year to print billions of hryvnia to fill a budget gap.
“It was a quick fix, but very dangerous,” said Pyshnyy, who wears several leather and silver bracelets on his tattooed arms, as well as the standard hoodie now worn by Ukrainian officials.
The Ministry of Finance had not wanted to exploit domestic bond markets or raise revenues instead. He has since changed course, paving the way for a $15.6 billion loan agreed between the IMF and kyiv last week, which still requires the approval of the fund’s board of directors.
The end of monetary financing, the use of domestic bond markets and measures to increase tax revenues were included in the agreement with the IMF.
Economists feared Ukraine slipped into a hyperinflationary spiral last year due to the printing of banknotes to compensate for delayed disbursements of EU financial aid.
Critics said the government should instead have tightened its belt, borrowed from Ukrainian banks and raised taxes and tariffs. Pyshnyy’s predecessor, Kyrylyo Shevchenko, echoed these arguments in a notice article in the FT in September, adding to tensions with the government.
Pyshnyy, a former banker who lost his hearing at 34, replaced Shevchenko in October.
From his first day in office, he set out to restore relations with the government, meeting with Finance Minister Serhiy Marchenko “until late hours of the night”. They struck a deal, with the central bank adjusting its bank reserve requirements and the ministry offering lenders more attractive terms.
Pyshnyy said the NBU’s goal was to absorb excess liquidity by tightening reserve requirements and gradually returning to a floating exchange rate.
He said the IMF had made a “revolutionary” policy change by agreeing to lend to Ukraine during a period of exceptional economic uncertainty caused by The invasion of Russia.
The agreement with the IMF would help “ensure that the coalition of donors commits to provide around $40 billion in aid” this year, he added.
Ukraine has failed to meet IMF conditions in a succession of bailouts. But Kyiv boosted confidence by hitting targets set by the fund during a “four-month program monitoring with board involvement” over the winter, Pyshnyy said.
He said the NBU would revise its 2023 GDP growth forecast to just 0.3% next month, after a 30% plunge over the past year, reflecting the impact of Russian missile strikes against the Ukrainian energy infrastructure during the winter.
The new forecast does not take into account additional Western aid for reconstruction, which Pyshnyy hoped would act as a “quick fix” for the economy.