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Week’s balance: Ukrzaliznytsia say goodbye to their rockstar CEO, NBU develops new forex regulations, while inflation sees growth

13:50, 13 August 2017
5 min. 456

The Cabinet this week approved the resignation of Ukrzaliznytsia CEO Wojciech Balczun, gave a start to the introduction of 4G, and raised liquor prices; the National Bank unveiled t draft of new forex regulation; while inflation has accelerated - these are the key economic news of the outgoing week.

The Cabinet of Ministers at its meeting on August 9 dismissed the CEO of the state-owned railway operator Ukrzaliznytsia, Wojciech Balczun, appointing first deputy minister of infrastructure Yevhen Kravtsov the company’s acting head. The government’s decision has put an end to the conflict between a Polish rock star and Ukrainian Minister of Infrastructure Volodymyr Omelyan, which has lasted since late 2016. Former head of the Polish railway company PKP Cargo, Balczun took office following an open competition but it did not save him from Omelyan’s constant public accusations of incompetence and slow reform of Ukrzaliznytsia.

Omelyan was satisfied by the government move, but at the same time, the minister said he insisted on changing the entire management team at Ukrzaliznytsia.

"I have raised the question of changing the top management at Ukrzaliznytsia over the past 10 months, and finally, it happened. Now the key thing is the complete replacement of the entire management team at Ukrzaliznytsia for a professional and truly independent one," Omelyan said, noting that law enforcement authorities are investigating about 90 criminal proceedings against UZ officials into embezzlement, appropriation of property through abuse of office.

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Balczun cited personal grounds in his resignation letter, although literally the day before the announcement he said that he had not intended to leave office yet. Summarizing his work following resignation, he said that the company’s financial performance has improved during his office: net profit rose, credit liabilities decreased, while the volume of paid taxes and fees rose.

"We have stabilized the company, improved all economic indicators, prepared a five-year strategy to restore the company reputation in the international arena, returned to the path of investment, and launched new passenger routes," said Balczun.

Perhaps the answers to the questions set forward by the public regarding Balczun will be provided by the National Anti-Corruption Bureau, whose chief Artem Sytnik vowed "appropriate measures" in case complicity in crimes was revealed.

Closer 4G, more expensive liquor


Another important Cabinet decision this week was the approval of the terms of the tender for the sale of frequencies for the introduction of the fourth generation mobile format, 4G. The starting price of lots of frequencies in the 1800 MHz range will be at UAH 3.975 billion, while the operators already working in Ukraine will enjoy the priority right of purchase.

The head of the National Commission for state regulation in the field of communications and information, Oleksandr Zhyvotovsky, called this range particularly important, announcing the sale of the corresponding frequencies by the end of 2017, and the launch of 4G at the end of next year. In addition, the government this week for the second time in 2017 decided to raise the minimum price for liquor.

According to the Ministry of Economic Development and Trade, retail prices for horilka and other alcoholic beverages increased by 14-19%; whiskey, rum and gin - by 6.5%; cognac (brandy) - by 12-29%; wines with the addition of alcohol, sparkling wines - by 7-13%. As the ministry explained, minimum prices, as in the beginning of the year, do not correspond to the real costs for the production and sale of alcoholic beverages, so the decision was made in response to "numerous appeals of market players."

In addition, the Cabinet approved a bill on the introduction of a single account for the payment of taxes and fees and a single social contribution for taxpayers. The Ministry of Finance informed that the bill provides for the taxpayers’ right to open at their request a single account in the Treasury through the electronic office, and use it to pay tax liabilities, which will greatly simplify the procedure for settlements with the budget, allowing businesses to save time and money, as well as avoid misunderstandings with changes in budget accounts.

Also, this week the National Bank of Ukraine and the Ministry of Finance failed to agree on re-profiling the domestic debt, which would protract in time debt payments and lower the pressure on the state budget.

New foreign currency regulations

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The National Bank delivered some more important news this week. They have published the long-awaited draft law "On Currency." It involves the abolition of the obsolete Decree on foreign currency regulation and the transition to a more liberal model. The new rules provide for the freedom to conduct foreign exchange transactions on the principle of "everything is allowed that is not directly prohibited." This is consistent with international practice and the Association Agreement with the EU. At the same time, the hryvnia will retain the function of money, remaining the only legal means for payments for goods and services, while foreign currency will be used for investment and banking services.

With the application of the new model, market regulation instruments will prevail over administrative ones, while currency restrictions will be introduced for the short term, only to overcome or prevent crises. However, the regulator warned that they would be able to abolish restrictions introduced in 2014-2015 only gradually, given favorable prerequisites, as well as effective tax regulation.

Discussion with the market of new rules of forex regulation, according to the NBU plan, will last until the end of August, after which the regulator intends to summarize the received proposals and submit them to the National Reform Council.

Also this week, the National Bank went for more forex easing - the purchase of foreign debt securities was simplified for banks. While earlier the bank needed an individual license to conduct such operations, now it is sufficient to have a general forex license.

At the same time, a number of restrictions for citizens and businesses are still in place, including the compulsory sale of 50% of foreign exchange earnings, preliminary deposit of hryvnia for the purchase of foreign currency on customer requests, one-day limit for the purchase of cash currency by individuals in the equivalent of UAH 150,000 per day, and one-day limit for withdrawing cash from a foreign currency account in the equivalent of UAH 250,000 per day.

Inflation rising again


The Ukrainian currency market demonstrated titanic calm throughout the outgoing week, while hryvnia strengthened against the dollar by almost 20 kopiykas, settling Friday at UAH 25.7 / USD. The calm on the market allowed the regulator to buy back another $50 million to replenish its reserves. Meanwhile, the National Bank reported on the reduction of Ukraine's international reserves in July by 1%, down to $17.795 billion, due to the repayment by the government of domestic dollar bonds worth $0.5 billion, a third of which was offset by the issuance of new bonds.

Despite the strengthening of the hryvnia, consumer inflation accelerated in July to 15.9% in annual terms. According to the State Statistics Service, the highest price increase was recorded for hot water and heating (74.8%), electricity (63.7%), vegetables (59.9%), and water supply (41.2%).

Commenting on the inflation statistics, the NBU noted that the actual price increase exceeded the regulator’s forecast trajectory, which indicates further strengthening of the risks of inflation deviation from the central point of the target range at 8% +/- 2 pp as of year-end.

Experts explain the acceleration of inflation by the negative impact of weather conditions on crops and high world prices for meat, which leads to cost of food remaining higher than expected.

"It is not yet clear whether the government in the fall of this year will raise tariffs for gas and central heating for the households to the level of imported parity. As long as the situation with gas prices does not clear up, we maintain our forecast for 2017 at the level of 10.5%," head economist at Dragon Capital Olena Belan said.

The coming week is likely to also be relatively calm for Ukraine’s economy, while the summer heat reigns over the country, and the elites vacation ahead of the upcoming autumn.

Olha Hordienko

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