Week's balance: Cabinet approves economic development plan, NBU sets benchmark for inflation, while Naftogaz presents new gas tariff proposals

18:00, 12.09.2020
4 min. 1225

The government has approved a priority action plan for economic development for the last four months of the year, the National Bank has retained the current inflation target of 5% for the next year, and Naftogaz presented new gas tariff proposals for households.

It's September already, and only this week did the Cabinet of Ministers approve its priority action plan for 2020. In fact, the plan covers the remaining three and a half months. Better late than never, though. As for the plan itself, as Prime Minister Denys Shmyhal put it, key initiatives are aimed at developing the national economy.

"Working with the European Union on an industrial visa-free regime, on updating the Association Agreement, developing a draft law on a free economic zone for the IT industry, continuing for six months after the end of the quarantine the moratorium on state control and inspections of businesses, supporting exports by updating the relevant agency, creating a development fund rural areas, the introduction of a zero declaration or capital amnesty," the head of government said, listing the main steps.

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The plan also provides for the completion of the liquidation of the State Fiscal Service and the State Architectural and Construction Inspectorate, drafting the bill on a funded pension system, completion of the customs reform, and a number of other initiatives.

It is yet to be seen whether the Cabinet will succeed in implementing almost 700 points laid down in the plan but, in any case, the document has been approved showing definite benchmarks and now the government can be held accountable if they fail on them.

Last week, the Cabinet also started drafting another major document – the National Economic Strategy-2030.

According to Minister for Development of Economy, Agriculture, and Trade Ihor Petrashko, the strategy will provide for a shift away from a development model based on the use of natural resources and cheap labor.

"Instead, we have to build an innovative model, whose priorities are the development and trade in products with higher added value, high technology in production, qualified and highly paid workforce, the saving of energy and other types of natural resources, and an innovative management style," Petrashko said.

The minister also said that the initiatives laid down in the strategy will be elaborated in state target programs and launch as early as next year.

More loans and moderate inflation

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In the outgoing week, the Council of the National Bank approved the Main Principles of Monetary Policy for 2021, keeping the inflation target at the current level of 5% with a deviation range of one percentage point.

In the meantime, inflation is outside the range established by the National Bank. The State Statistics Service reported that consumer inflation in Ukraine in August 2020 in annual terms stood at 2.5%, accelerating from 2.4% in July. Although the NBU predicts that inflation will enter the target range by the end of the year due to the gradual recovery of global economy and the rise in energy prices, it is still unknown how everything will turn out in practice.

Monetary policy principles for 2021 call for an increase in bank lending. NBU Governor Kyrylo Shevchenko stressed that along with maintaining a moderate rise in prices, this principle is one of the key directions of the regulator's policy for the next year.

"The National Bank sets an ambitious task: not only to maintain moderate rates of price growth, but also to revive bank lending, to help reduce the cost and lengthen the maturity of financial resources for the development of the economy's real sector," he said.

The NBU says special attention will be paid to the interaction with the government in terms of reducing the credit risks of the banking system and restructuring the economy.

As for the hryvnia exchange rate, Head of the NBU Council Bohdan Danylyshyn says that the regulator will continue to observe the floating exchange rate regime, while foreign exchange interventions will continue to play a special role to this end.

"The effectiveness of compliance with the strategy of foreign exchange interventions is confirmed in practice, and the National Bank has perfectly demonstrated this in its current activities," he said.

The statistics gives optimism about hryvnia prospects. According to the National Bank, Ukraine's international reserves in August increased by another percent, amounting to $29.05 billion.

In early September, Ukraine paid off about $2 billion on foreign debts, which, obviously, will be reflected in the next report on NBU's foreign reserves. Meanwhile, Ukrainians, amid limited opportunities for foreign travel, for the ninth month in a row, continue to sell much more currency than they buy. According to the central bank, Ukrainians sold $1.448 billion through the banking system in August, or $151 million more than they bought.

New gas prices for the population

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In the outgoing week, energy companies reminded the population that now they live in new market conditions. The state-owned Naftogaz of Ukraine has proposed new gas tariff plans - Monthly and Annual – for households.

In "Monthly", the price changes monthly depending on price fluctuations on the market, and payment for gas consumed is made the next month after delivery. It should be noted that Naftogaz, within the framework of the Monthly tariff, set the gas price for households in September at UAH 4.7 per cubic meter, which is 45.2% higher than a month earlier.

Under the terms of the Annual tariff, the price and the estimated volume of gas consumption are fixed at the conclusion of the contract. Consumers pay a fixed amount every month throughout the year, and if they consume volumes below the target, the amount saved will be returned to their account at year-end. In general, in September gas supply companies offer households to buy gas at a price of UAH 4.4 to UAH 7 per cubic meter.

By the way, according to the Ministry of Energy, this year Ukraine will enter the heating season with record gas reserves in storage (26 billion cubic meters), which gives confidence.

Also in the outgoing week, Naftogaz showed the government strategic directions for increasing gas production. In particular, it's the prospects for developing deep horizons, unconventional gas deposits in solid rock, and on the Black Sea shelf. Naftogaz Head of Board Andriy Kobolyev emphasized that state support is needed to significantly increase output.

"There are prospects in Ukraine for the transition from stagnation to production growth. But new directions and projects that can yield such a result carry significant risks, require significant investments, new technologies and expertise. We, as a company that protects Ukraine's interests, are ready to take responsibility, but successful implementation requires a pro-active stanec on the part of the government, our joint work," he said.

Although PM Shmyhal confirmed the state's support for Naftogaz's plans, the resource intensity and complexity of the development of new fields raises the question of how quickly Ukraine will be able to start working to achieve the stated goals.

The Verkhovna Rada will return to session work starting next week. Deputies will begin the process of adopting the state budget for 2021, since already Shmyhal said the draft would be submitted to parliament as early as September 15. Next week, the State Statistics Service will publish preliminary data on the country's GDP in the second quarter, which, most likely, will hardly please Ukrainians.

Pavlo Stepanets

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