Week's balance: Economic growth, hryvnia's fall, and "bears" to Moscow instead of trains
The hryvnia accelerated its seasonal decline, the State Statistics Service reported on the acceleration of the country's economic growth in the second quarter, while infrastructure minister Volodymyr Omelyan made new statements on the halt of passenger communication with the aggressor state Russia via railways - these are the week's main economic news.
This week came the pleasing update on one of the key economic indicators, gross domestic product. The state statistics agency says in the second quarter of 2018, real GDP growth in annual terms - against the second quarter of 2017 - accelerated to 3.6% after 3.1% in the first quarter. Thus, the gross domestic product in annual terms has been growing for the tenth consecutive quarter, while such growth has been accelerating for the third consecutive quarter.
Prime Minister Volodymyr Groysman noted that the economy could grow even faster, despite the fact that the economic growth rates have already exceeded the forecast figures.
"We are already ahead of our forecast. I emphasize once again: we could grow faster, and our government is doing its utmost to this end," Groysman wrote on his Facebook page.
An increased volume of foreign trade played not the least role in economy growth. According to the stats, in the first half of the year exports of goods and services increased by 11.1%, to $27.816 billion, while imports grew by 13.5%, to $28.469 billion.
At the same time, Ukraine's foreign trade balance for January-June 2018 was reduced to a deficit of $653.1 million, which is thirteen times higher than the deficit for the same period last year at $48.7 million. At the same time, the balance of trade in goods was reduced to a deficit of $2,658 billion and the balance of trade in services saw a surplus of $2,826 billion.
Sometimes they return
One of the main breakthroughs of the outgoing week was the report on the expected arrival in Kyiv on Sept 6 of the mission of Ukraine's key creditor, the International Monetary Fund.
"At the request of the Ukrainian authorities, an IMF mission will visit Kyiv during September 6-19, 2018, to discuss recent economic developments and policies," the Fund's Ukrainian office said.
According to the mission, the mission's agenda, including financial assistance from the IMF in support of policies aimed at preserving Ukraine's macroeconomic stability and ensuring the development of the country's economy towards sustainable and inclusive growth.
It is difficult to overestimate the importance of the mission's arrival, because it depends on the conclusions of IMF representatives, whether Ukraine country receives another bailout tranche after a more than a year's pause.
As noted by the National Bank, the prospect of obtaining funding from the IMF will improve the government's ability to attract on the international capital markets debt resources necessary for the period of peak payments for the public debt in 2018-2020, on acceptable terms, despite the weakening of investors' appetite for emerging market assets.
This week, the World Bank said that upon reaching an agreement with the IMF, the bank, at the request of the Ukrainian government, is ready to provide our country with a $650 million guarantee for attracting about $800 million in foreign markets.
At the same time, the new World Bank transaction will be possible once completion of all actions on the initiated reforms and ensuring favorable macroeconomic situation is confirmed. The bank calls for the entry into force of the laws "On Amendments to Certain Legislative Acts of Ukraine Concerning the Improvement of the Functioning of the Financial Sector" and "On Amending Certain Legislative Acts of Ukraine Regarding the Renewal of Lending," both adopted by the Verkhovna Rada in July 2018.
To ensure a positive decision of the IMF, the government is yet to revise gas tariffs for the population in accordance with the market level and cut budget expenditures.
Fulfilling these conditions is a complex and painful step towards many Ukrainians, which may lead to deterioration in the well-being of citizens. Therefore, it is not surprising that the Cabinet has for months been engaged in a difficult dialogue with the IMF to choose the right mechanisms for fulfilling said obligations.
At the same time, the consequences of a failure to receive the next tranche may be even worse. Therefore, the government faces a difficult task - to fulfill the IMF requirements with protecting low-income citizens and at the same time preserving the population's solvency.
Continued cooperation with the IMF will undoubtedly have a positive impact on the national currency rate, which is now seeing a trend for devaluation. From August 13 to August 17, the NBU lowered the official rate from UAH 27.24 to UAH 27.67 per dollar. Over the same period, the rate on the interbank foreign exchange market fell from UAH 27.36 to UAH 27.91 per dollar.
The NBU rushed to reassure that fluctuations are not a sign of a crisis, while the growth of the dollar is affected by the seasonal factor.
"Seasonality depends on the agricultural period. We are an agrarian country. Today, about 45% of exports are agricultural products. Ukraine exports grain. Ukraine is No.2 in corn exports. We top the list of sunflower oil exporters. When there is export, there are proceeds. On the other hand, one must understand that Ukraine has an economy that is not entirely on the bright side. In particular, most of the agricultural sector remains in the shadows," Deputy NBU Governor Oleh Churii told NV Radio.
He also recalled that in 2016, fluctuations began in September, in 2017 it was August, and this year, the start was in July.
"The reason is simple. The rate is important for businesses and the public. They looked at this and realized that there was no point in waiting for September, so they bought currency in August. I think that this year there was a similar situation. We see here a psychological effect. I would not say what's happening today is panic, but there is certain nervousness. Fluctuations are not a sign of a crisis,"Churii said.
Omelyan and "bears"
This week, Minister of Infrastructure Volodymyr Omelyan made another loud statement about the termination of passenger railway communication with the aggressor state, Russia.
"Today I signed a historic document. Only bears will go to Moscow, as in the good old days," the minister wrote on his Facebook page.
Later he explained that the Ministry of Infrastructure had developed a number of countermeasures to counter and terminate cooperation with the Russian Federation, which has been carrying out aggression against Ukraine for more than four years already. The proposals will soon be submitted to the Government for consideration.
"We believe that in the conditions of war there can be no talk of any normal cooperation with the Russian Federation. Whether people like it or not, Ukraine's actions must be tough and adequate. One of the elements that we propose for government approval is to cancel passenger rail transportation [to and from Russia]," he said.
"I believe we will protect Ukrainians in this way, those who continue traveling to the Russian Federation at their own risk, from being abducted or getting into the clutches of the FSB or other law enforcement agencies in Russia. We see that such cases have become frequent. Secondly, and this is key: if we're at war, there is no need to go there," Omelyan stressed.
It is not yet clear how the termination of passenger railway ties will hit Putin's Russia and stop the Ukrainians, who, despite the aggression, continue their Russia travels on business and family matters. Moreover, it is possible to get to Russia on another railway line, for example, via Belarus, which, incidentally, is a no less dangerous place.
Next week also promises to be interesting. The country will celebrate Independence Day, the State Statistics Service will publish data on industrial production and retail trade turnover for seven months, and after a three-week break, a Cabinet meeting may possibly be held, at which the issue of changing gas prices for the population may be considered.