Week’s balance: in anticipation of IMF decision, Cabinet attack on "space-high" utility bills, and healthcare reform

10:00, 03 December 2016
271 0

The National Bank of Ukraine announced a plan of gradual forex liberalization, the State Property Fund sold a Ukrainian bank to a Chinese investor, while the Cabinet launched an attack on the "space-high" bills for central heating and decided how on how the country’s healthcare system would be funded – these are the main economic news of this week.

A sharp issue of continuation of cooperation between Ukraine and the IMF rose once again this week. Finance Minister Oleksandr Danyliuk said in his comment to UNIAN he hoped that the meeting of the Board of Directors of Ukraine’s key creditor to assess the EFF implementation by Ukraine would be held “before the end of the year”.

He also said that representatives of the Fund were satisfied with the draft state budget for 2017 and with the pace of discussions on other issues, in particular pension and land reform.

Meanwhile, Danyliuk’s colleagues from the National Bank are more pessimistic. NBU Governor Valeria Gontareva, who in recent weeks has been reflecting tough attacks of her political opponents, noted that the risks were too high of not receiving the IMF tranche this year. She added that the refusal of the International Monetary Fund and other international donors to support Ukraine would result in an inevitable decline in international reserves and threaten financial stability in the country.

In accordance with the Extended Fund Facility, next year Ukraine should receive four IMF tranches worth a total of $5.4 billion. At the same time, Kyiv will have to pay $2.6 bln for the servicing and repayment of earlier loans. In this situation, the continued support by the IMF and other international donors is critical – otherwise, the reserves will start melting.

A positive decision of the Board of Directors of the IMF depends on the adoption by the Verkhovna Rada of the state budget for 2017 in the first week of December.

And if the budget is not adopted the next plenary week, the National Bank will have for the fourth time this year to revise its forecast for foreign exchange reserves toward their decrease. At the moment, the regulator predicts growth of reserves at the end of the year to $17.5 billion but this forecast includes obtaining $600 mln from the EU and $1.3 bln from the IMF.

However, the regulator’s reserves have already started to shrink, despite the fact that in November the NBU was actively buying dollars in the foreign exchange auctions. In the past month, according to preliminary data, the reserves decreased by 1.2%, or $0.2 billion. And the hryvnia last month also lost its positions against the dollar by 0.6%.

Forex liberalization and new bank investors

The NBU introduced the concept of a new model of forex regulation / Photo from UNIAN

This week the National Bank introduced the concept of a new model of forex regulation, instead of the enforced decree, adopted back in 1993.

The new foreign exchange regulation is not only more liberal in comparison with the current one, but also in line with international practice on the free movement of capital and the Ukraine-EU Association Agreement.

The new model involves gradual relaxation of forex regulation in three stages - the lifting of restrictions on export-import transactions and foreign direct investment, restrictions on portfolio investment and flows of debt capital, as well as all obstacles to financial transactions of individuals abroad.

As part of this forex liberalization the regulator plans to gradually abolish the norm on a compulsory sale of 65% of foreign exchange earnings by exporters, as well as to increase the fixed 120-day deadline for the payments in export-import contracts, toward its complete abolition.

In addition, the regulator intends to lift the restriction on the maximum amount of prepayment in import contracts, simplify licensing for investment in support of Ukrainian exports, and cancel the repatriation of the proceeds from the termination of participation in the capital.

For individuals, the regulator seeks to abolish the restriction on the purchase of foreign currency in cash, currently set at a rate equivalent to UAH 12,000 per day, as well as the restriction on the withdrawal of currency from the account, now being at the level of the equivalent of UAH 250,000 per day.

Cancellation of restrictions will be implemented gradually, in the presence of positive prerequisites on the market, including a stable macroeconomic environment, continued cooperation with the International Monetary Fund, and the absence of significant gaps in the balance of payments.

At the next stage, the regulator intends to revise the administrative constraints for banks, including the maximum volume of purchases of foreign currency for the bank’s own operations and hedging foreign currency loans; as well as for legal entities, including the issue of early repayment of loans to non-residents and the withdrawal of funds from the sale of securities.

At the last stage, the National Bank plans to abolish the licensing of investments in securities and real estate abroad for individuals, legal entities, and banks.

At this, the liberal model of forex regulations will be complemented by effective tax regulations. According to the NBU initiative, the Parliamentary Committee on Taxation and Customs Policy has drafted two bills implementing in Ukraine the key recommendations of the OECD to counter the decrease in the tax base and the movement of income abroad (BEPS).

At the same time, realizing the opening prospects of the Ukrainian market, foreign and national investors have begun to look closely into the country’s banks. This week the State Property Fund announced the sale for UAH 82.8 mln of 99.99% of shares in the Ukrainian Bank for Reconstruction and Development to China’s Bohai Commodity Exchange.

CEO of the buyer company Yang Dong Sheng said that the new investor intended to develop the bank, and both the Ukrainian and foreign experts will be involved to this end. "We want the bank to have a lot of trust among the Ukrainian and Chinese clients. In the future, it will be a platform for the settlement of trade transactions between Ukrainian and Chinese enterprises," he said.

This week, Ukrainian businessman Serhiy Tihipko received a permission from the antimonopoly committee to purchase Universal Bank, which is part of Eurobank (Greece) international financial group. In addition, the NBU said that the co-owner of the company VS Energy International Group and president of the Russian football club CSKA, Yevgeny Giner, became the owner of 52.93% of shares of First Investment Bank.

Healing weak healthcare

The Cabinet approved the concept of healthcare reform / Photo from UNIAN

This week the government approved the concept of healthcare reform, which was developed by the Ministry of Health with the assistance of the Ministry of Finance and independent public experts.

The finance ministry noted that the old model of healthcare funding involved allocation of public funds for maintaining healthcare infrastructure, rather than for the reimbursement of the citizens’ financial risks in case of illness.

"In fact, it was the facilities that were funded, regardless of whether there were patients there, instead of financing the very healthcare services," reads a statement by the Ministry of Finance.

The essence of the reform is that the government needs to declare a guaranteed package of health services, to enable the people to purchase that package from those doctors that they wish to choose. That is, the state would pay for a contract with a physician chosen by the patient, instead of the government paying for a network of doctors and patient’s committing to go to the doctors on a geographical basis.

The finance ministry noted that the implementation of this model would not require additional expenditures. It will not lead to tax increases.

The introduction of a new model of healthcare financing on insurance principles will occur gradually - until 2020.

The government in the state budget for 2017 plans to increase spending on healthcare by 26%, to UAH 88.7 billion. This amount would cover 100% of the need for medications for cancer patients, those infected with HIV, as well as those suffering from diabetes. In addition, the government has increased the salaries of doctors by approximately 40%.

Revision of bills for central heating

The Cabinet decided on a calculation of heat consumption by households / Photo from UNIAN

This week the government addressed the issue of improving the system of payment of utility bills.

In mid-November, Ukrainians saw some jaw-dropping bills for central heating services. The Kyiv supplier of heat, Kyivenergo, explained these high heating bills for the households not equipped with heat meters with a calculation method adopted by the Cabinet, according to which the rate is calculated with reference to the average temperature and the number of days of the heating period.

The National Energy and Utility Regulation Commission stood up for the current calculation method, saying that this methodology did not lead to any errors.

Prime Minister Volodymyr Groysman said that in houses where the data recorded by heating meters was taken into account, the charges were fair and reasonable, while in places where the meters had not been installed, there were signs of unscrupulous actions of officials.

Groysman suggested linking a formula of heating prices calculation for households with no heating meters to the average pay central heating in households equipped with such devices.

He instructed the local authorities to complete as quickly as possible the process of equipping all households with heat consumption meters.

The next week promises to be rich in economic events. First of all, the attention of many Ukrainians will be focused on the Verkhovna Rada, which will resume its plenary meetings and begin consideration of the draft state budget for 2017 and the new Tax Code. The State Fiscal Service pledged to submit its annual report, while the State Statistics Service is expected to report data on inflation in November.

Ksenia Obukhovska (UNIAN)

If you see a spelling error on our site, select it and press Ctrl+Enter

What do you think about our new website?
Share your opinion

By continuing to browse www.unian.info, you acknowledge that you have read this website's Terms of Use and agree to the Privacy Policy