Financial Stability Council: NBU and Ministry of Finance to improve coordination to achieve macroeconomic stabilization

On January 29, 2016, the scheduled meeting of the Financial Stability Council took place. The meeting was chaired by Minister of Finance Natalie Jaresko and attended by Prime Minister Arseniy Yatsenyuk.

The Council members pointed out that the external environment had become much less favorable for the economy and financial system of Ukraine over recent months. This has to do with the continued sharp decline of prices for the key positions of the Ukrainian export as well as with the new restrictions in trade with the Russian Federation and in the transit of Ukrainian goods through its territory to third states. A sharp devaluation of the currencies of developing countries has also substantially lowered the price advantage of Ukrainian manufacturers. These factors along with season-related volatilities have resulted in the significantly lower export revenues of Ukrainian companies in recent months and contributed to more fluctuations on the currency market. The aggravating impact of these factors poses a key risk for the Ukrainian economy in 2016. 

At the same time, the Council members mentioned the improved macroeconomic conditions including the slower inflation pace and the reached deficit targets of the state budget for 2015. Ukrainian banks are resuming their deposit portfolios which can be a sign for the rebuild of confidence in the Ukrainian banking system. According to the forecast of the National Bank of Ukraine, the country’s GDP in 2016 will rise for the first time after the two years of decline.

The participants of the meeting emphasized that the National Bank of Ukraine and the Ministry of Finance need to coordinate their efforts to reach macroeconomic and financial stability. Well-coordinated fiscal, monetary and loan policy is a crucial pre-condition for a successful switch to inflation targeting. «We believe in inflation targeting, and we are already pursuing it. There is no alternative for a country pursuing an independent economic policy», Head of the National Banl Valeriya Hontaryeva said. 

"We represent a firm stance on the prudential budget policy and the reduction of fiscal risks for the country. Thus, last year we successfully executed the state budget for the first time in many years. We are continuing this well-balanced budget policy in 2016. The budget deficit planned for 2016 is 3.7% and will be covered without emission", the Minister of Finance reported at the meeting. 

The Head of the National Bank also welcomed the return of the Ministry of Finance to the primary market for public domestic bonds. «Long-term domestic bonds will be generating yields necessary for the implementation of the National Bank’s monetary policy», Valeriya Hontaryeva stressed.

Prime Minister Arseniy Yatsenyuk said that the further full-scale cooperation with the IMF, World Bank and other international partners is one of the conditions for the financial stability in Ukraine.

For information: the Financial Stability Council was created in March 2015 in accordance with a Presidential Decree. The members of the Council are the Head of the National Bank of Ukraine, the Minister of Finance of Ukraine (co-chairman of the Council), the Head of the National Securities and Stock Market Commission, the Head of the National Commission for State Regulation of the Financial Services Market, Managing Director of the Deposit Fund, deputy Head of the National Bank of Ukraine, deputy Minister of Finance of Ukraine. The Council serves as a platform for the professional discussion of risks affecting the financial stability of Ukraine.