Week's balance: New front against Gazprom, forex easing, and new tax service chief
Naftogaz of Ukraine has opened a new front in its battle against Russian Gazprom, the National Bank raised the bar for the withdrawal of dividends by foreign investors, while the Cabinet of Ministers appointed a new head of the Tax Service – these are the main economic news of the outgoing week.
The second week of May was not rich in economic events in connection with another short holiday season in Ukraine. But some economic developments were worth our attention.
At the beginning of the week, National Joint-Stock Company Naftogaz of Ukraine filed a complaint with the European Commission over anti-competitive actions of the Russian gas monopoly, Gazprom.
'We have just opened a new front in the confrontation with Gazprom – we filed a complaint with the European Commission over anti-competitive actions," said Naftogaz CCO Yuriy Vitrenko.
According to him, the document describes in detail the abuses in using the gas pipeline bypassing Ukraine, Nord Stream-2, blocking the virtual gas reverse flow, and control over European companies.
Naftogaz expects that the complaint prepared together with leading European experts and lawyers will help stop anti-competitive actions, and the import of Russian gas for Ukraine may become cheaper by using European gas consumers using the capacities of our gas transmission system and receiving it at the eastern border.
It is quite possible that this step will become an additional incentive for the northern neighbor's flexibility in the upcoming tripartite gas transit talks with the participation of the European Commission, scheduled for the end of May. The key goal of these negotiations is to preserve the transit of gas through Ukraine, the loss of which could result in the loss of 4% of GDP and possible economic recession as early as 2020.
Meanwhile, insignificant economic growth in Ukraine is further slowing down.
This week, the National Bank published its estimates, according to which Ukraine’s growth in the first quarter slowed down to 2.4% in annual terms after growing 3.5% a quarter earlier. As explained by the NBU, this is due to a reduction in the positive contribution of the agricultural sector, since the effect of the record harvest of grains and oilseeds has exhausted itself.
Not so pleasing are also the data on the dynamics of Ukraine’s international reserves, which, under pressure from debt payments in April, fell by 0.5% to $20.5 billion as of early May. And this is in anticipation of the largest debt payments scheduled for this year – the redemption of Ukraine’s five-year Eurobonds worth $1 billion issued under the guarantees of the U.S. government in May 2014.
Inflation data are rather depressing, too. According to the State Statistics Service, consumer prices in Ukraine in April accelerated to 8.8% in annual terms, while vegetables rose in price most of all – by 47%. Ukrainians have noticed this, and throughout the past week they have been actively discussing the increase in price for the so-called borscht set, in particular, such an important component as onions. According to the data of the EastFruit project, in just a week, a popular vegetable rose in price by 1.5 times – to a historic maximum of UAH 40 per kilogram.
Some statistics still inspire optimism. Thus, the state and state-guaranteed debt of Ukraine at the end of the first quarter in relation to GDP dropped below 60% for the first time since 2014, and the volume of foreign direct investment in the country's economy during this period amounted to almost $1 billion. Non-residents' investments in government bonds continue growing – since the beginning of the year, the volume of investments in government bonds has increased almost six-fold – up to UAH 36 billion.
Taking into account these factors, the forex market of Ukraine remains in a calm state, while the Ukrainian hryvnia is gradually strengthening against the dollar and the euro. At the same time, political uncertainty puts pressure on people's minds: in April, for the second month in a row, Ukrainians bought more cash in the banking system than they sold. At the end of the month, the net purchase amounted to $115 million, or 1.5 times more than a month earlier.
Given the calm situation in the foreign exchange market, the National Bank took the next steps in forex liberalization. From May 8, businesses can withdraw dividends to foreign investors at around EUR 12 million per month, which is almost double the previous maximum.
However, according to the NBU estimates, this step will not be critical for maintaining macro-financial stability in Ukraine, but at the same time it will help improve the investment climate. In the future, the regulator plans to completely abolish the restriction.
In the outgoing week, the intentions of paying dividends to shareholders were announced by the largest Ukrainian banks with foreign capital. Thus, UkrSibbank intends to pay out to shareholders UAH 2.5 billion and Raiffeisen Bank Aval will pay UAH 3.6 billion. Taking into account the higher limit of the NBU, the payment of dividends by these banks will stretch for seven and ten months, respectively.
New head of Tax Service
In the outgoing week, the Cabinet of Ministers appointed Serhiy Verlanov, who previously held the position of Deputy Minister of Finance of Ukraine and won the competition for this position, head of the newly established State Tax Service. He is appointed for a period of five years with a month-long trial period.
According to the Ministry of Finance, the new service will be registered as a legal entity and will begin to form its staff, including one third at the expense of the current staff of the reformed State Fiscal Service.
At the same time, the issue of the formation of the customs service remains suspended at the behest of the District Administrative Court of Kyiv, which refused to appeal the decision of the court of a lower instance to suspend the competition for the selection of the head of this service.
Next week promises to be richer in economic events, since the Verkhovna Rada will resume plenary sessions after the May holidays.
It is possible that the deputies will adopt a number of laws that are important for the country and the continued cooperation with the International Monetary Fund, the arrival of the assessment mission of which is scheduled for May 15.