Week's balance: Zelensky vows business liberalization, NBU cancels mandatory sale of forex proceeds, while state budget gets EUR 1 bln
President Volodymyr Zelensky promised Ukrainian business leaders to liberalize the economy and improve business climate, the National Bank decided on a historic step to abolish the mandatory sale by exporters of foreign exchange proceeds, the state budget was replenished by EUR 1 billion after a successful placement of foreign government bonds, while the statistics agency improved the outlook for GDP growth in the first quarter – these are main economic news of the outgoing week.
Amid summer heat and vacations for many Ukrainians, this week featured plenty of important economic developments.
On Thursday, June 20, President of Ukraine Volodymyr Zelensky held a large meeting with Ukrainian business leaders, where he voiced a number of program promises on further liberalization of the national economy, acceleration of privatization, and deregulation of business.
Many rounds of applause were heard that day as the Ukrainian leader spoke.
Zelensky started off by praising the National Bank for preserving macrofinancial stability and promised to respect and protect the regulator's independence.
The president also said that he had canceled more than 160 decrees of his predecessors which "hindered operations of businesses." Most of these decrees were issued during the cadence of Leonid Kuchma and then Viktor Yanukovych who later fled the country in disgrace. Among the abolished decisions was the one on the minimum amount of payments to notaries, which will help reduce the cost of registration of real estate transactions, as well as the fines for violation of regulations for cash registers' operations.
By the way, such cash register inspections traditionally were a headache for Ukrainian businesses. According to the State Fiscal Service, in 2018, the agency conducted almost 17,000 inspections, which resulted in the companies being fined UAH 940 million. At the same time, violations were established in 100% of the cases. That is, every visit of tax authorities ended in a fine.
Zelensky voiced an ambitious goal for the country to enter in three or four years the TOP 10 in Doing Business ranking. Over the previous three years, Ukraine has strengthened its position there, having climbed to 71st spot from the 83rd position. Currently, Ukraine is one of the leaders in terms of growth rates in the ranking.
Among other important promises voiced by president is the intention to pursue the European course of the state and cooperation with the key creditor of Ukraine, the International Monetary Fund. Zelensky set a goal in the next five years to join the European digital market and the Unified Energy System of the EU.
The head of state focused on the need to form a positive image of Ukraine abroad, so that "there was a line of investors in our country".
"I decided to invest in Ukraine the most expensive thing I have, which is my time. And I urge all of you to do the same: invest in Ukraine," said the president.
According to Zelensky, improving business climate in Ukraine will also be facilitated by tax amnesty on preferential terms, after which it will be possible to seriously consider introducing an exit capital tax and having it replace the existing profit tax. However, Zelensky did not elaborate on the timeframe for such tax reform.
“We are well aware that very often Ukrainian businesses would withdraw money from the country not because they have a good life here, but because of corruption pressure and a natural desire to simply protect their assets," the president noted.
Zelensky announced large-scale privatization of state assets, protection of competition, and restrictions for monopolies, as well as strengthening the fight against corruption in judiciary.
The president also supported "demilitarization" of units of the State Fiscal Service and the creation of the State Financial Investigation Service with an emphasis on analytical work. Besides, he suggested that the Verkhovna Rada deprive the SBU Security Service of Ukraine of unnatural functions to have it deal with "spies and saboteurs" rather than businesses.
Zelensky also announced his intention to lift administrative bans, which are, in fact, remnants of Soviet regulation. It is the lifting of bans on certain activities, such as gambling, as well as restrictions on the disposal of currency and land. By the way, the head of state supported the launch of the land market since 2020.
As noted by business representatives, the promises voiced, if fulfilled, will indeed be able to improve business climate in Ukraine and, as a result, accelerate growth of the national economy.
NBU's historic decision
Another important event for businesses this past week was the historic decision of the National Bank of Ukraine to cancel the mandatory sale of foreign currency proceeds by exporters. Thus, the banking regulator made another revolutionary move on the path to forex liberalization.
The NBU press service noted that the abolition of the mandatory sale of foreign exchange proceeds will not have a negative impact on macro-financial stability, as in recent years, with the standard sale of mandatory sales at 50% and its reduction to 30%, businesses generally sold over 90% of the currency received.
The National Bank stressed that the abolition of the mandatory sale of foreign currency is another step toward the free movement of capital, as one of the strategic goals of the regulator. Such restrictions were "naphthalene" of the Soviet past, where the state had created artificial restrictions to prevent citizens from making independent decisions and freely managing their funds. After all, for example, if the exporter intended to allocate the proceeds for the acquisition beyond Ukraine of any materials and components using foreign currency, it did not make sense to transfer the proceeds to hryvnia, then exchange them for euros and, at the same time, also lose on the exchange rate difference.
Business instantly responded to this gift from the regulator. As the press service of the European Business Association noted, entrepreneurs have been waiting for the corresponding simplification of currency legislation for more than twenty years.
"This is another step towards full monetary liberalization and ensuring free movement of capital in accordance with the EU-Ukraine Association Agreement. In addition, this is an absolutely normal practice, with which the whole world is guided," said Ihor Hotsyk, the association representative.
The steps taken towards liberalization and deregulation have a positive effect on financial stability in the state. Incidentally, on Tuesday, June 18, the NBU presented a report on financial stability in June, according to which system risks are currently at one of the lowest levels in history, while macroeconomic conditions are favorable for banks. At the same time, the National Bank still considers one of the key threats to financial stability in Ukraine litigation over PrivatBank and the protracted pause in cooperation with the International Monetary Fund.
State budget replenished by EUR 1 bln
Those were not all of this week's positive economic news. On Thursday, the Ministry of Finance reported that Ukraine had received funds from the placement of external government loan bonds in the amount of EUR 1 billion with a yield of 6.75% per annum, maturing in June 20, 2026. This placement of securities marked Ukraine's return to the borrowing market in euros after a fifteen-year pause.
The bonds were mainly bought by asset management funds, as well as foreign pension and insurance funds. In terms of geography, most of the bonds were acquired by investors from the United Kingdom, the USA, Germany and some other EU countries.
Another important news of the outgoing week was the revision of Ukraine’s GDP growth estimates. The State Statistics Service improved its previous outlook of economy growth in the first quarter of 2019 in annual terms – up to 2.5% from 2.2% voiced previously. And although the figure exceeds the previously published one, it is still lower than the in the previous quarter (3.5%).
At the same time, Ukraine continues to show the highest growth of nominal GDP in Europe due to the growth of incomes of the population. Thus, nominal GDP for the first three months of 2019 amounted to UAH 807.8 billion, while GDP per capita was at UAH 19,200.
In the last week of June, the State Statistics Service will publish May stats on industrial enterprises' performance, legislators will prepare for the early parliamentary elections scheduled for July 21, while ordinary Ukrainians will continue to enjoy hot summer days.