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The Financial Stability Council Focuses on the Importance to Continue Cooperation with the IMF and Addressing Non-rhythmic Budget Expenditures

23 January 2018

Press Release


On 19 January 2018, a regular meeting of the Financial Stability Board was held with the participation of the Minister of Finance of Ukraine Oleksandr Danyliuk, Acting Governor of the NBU Yakiv Smolii, Head of the National Securities and Stock Market Commission (NSSMC) Tymur Khromaiev, Head of the National Commission for State Regulation of Financial Services Markets (NCSRFS) Ihor Pashko, Managing Director of the Deposit Guarantee Fund Kostiantyn Vorushylin, the First Deputy Minister of Finance Oksana Markarova and Deputy Minister of Finance Yurii Butsa, Deputy Governors of the NBU Kateryna Rozhkova, Dmytro Solohub and Roman Borysenko, and other representatives of these institutions.


Discussing systemic risks, the Board members stressed that global market conditions remained favorable for Ukraine, while forecasts of international organizations and investor sentiment stayed optimistic. At the same time, the main risk factor for financial stability today is the delay in cooperation with the International Monetary Fund and receipt of the next tranche of official funding. It hinders attraction of funds from other international partners of Ukraine and can lead to an increase in the cost of borrowing on foreign markets. Given the need to repay more than USD 10 billion of external government debt in 2018–2019, the risk of further delay with the implementation of the IMF program remains critical for Ukraine. The Board called on all interested government bodies to promote further cooperation with the IMF and other international donors.


At the same time, during the meeting, the participants noted positive macroeconomic developments. In 2017, the Ukrainian economy continued to grow as the domestic consumption picked up and foreign markets were benign. The economy will continue to grow this year. The banking sector shows further inflow of retail and corporate deposits, as well as a revival of not only consumer but also corporate lending.


The meeting participants also discussed cooperation between the Government and the NBU, in particular, managing the Government’s liquidity during the year in order to mitigate the impact on the FX market and price stability.  


Dmytro Solohub said that the situation with VAT refunds had improved significantly in 2017. “While earlier VAT refunds were made in such a way that 95%–99% of the funds were paid on the last days of the month, now it is happening in the middle of the month. Alongside, a faster rhythm of these payments and budget expenditures spread more evenly during the year would further mitigate the effect on the foreign exchange market,” he pointed out.


The Ministry of Finance explained that the significant payments made from the Single Treasury Account at the end of the year were primarily due to the non-rhythmic spending of funds during the year by budget funds owners. “The transition to a three-year budget planning would help solve this problem. We expect amendments to the Ukrainian legislation needed for its introduction on a permanent basis to be adopted already in the first half of 2018,” said Yurii Butsa.


The meeting also covered development of an updated strategy for state-owned banks. According to Oksana Markarova, the Deputy Minister of Finance, the document will be finalized and submitted for consideration to the Cabinet of Ministers of Ukraine in the near future. The strategy implementation will require changes in the corporate governance system of state-owned banks.  Therefore, the Board urged the involved parties to promote the adoption of the draft law on specifics of corporate governance in state-owned banks and the establishment of independent supervisory boards.


The Financial Stability Board also considered development of capital markets and regulated commodity markets and their impact on stability of the financial system of Ukraine. Tymur Khromaiev, the Head of NCSRFS, spoke about legislative initiatives in this area, in particular about the draft law On Capital Markets and Regulated Markets (No. 7055), which implements the norms of European directives on financial instruments and regulated markets in the Ukrainian legislation.


Introduction of derivatives in the commodity and financial markets will reduce dependence of producers on price and currency fluctuations and create conditions for transparent pricing for basic goods. Full-scale implementation of derivatives in Ukraine for agricultural products (grain, corn, sunflower) and energy resources (gas, electricity) alone will create a market of about USD 30 billion per year. The widespread use of derivatives in commodity markets will have a huge social impact.


“We will substantially improve the price formation processes in the markets of basic goods, such as wheat, corn, sunflower, natural gas, electricity, etc. This will allow us to create local hubs for natural gas and electricity as well as for agricultural crops, and reduce dependence on prices in Chicago, Rotterdam, and Baumgarten. In addition to reducing the price volatility and Ukraine’s dependence on the price dynamics in other countries, this will give us an overall decrease in risks to the financial system stability and will contribute to additional GDP growth of up to 2% annually,” said Tymur Khromaiev.


The Board supported the proposed amendments and called for the adoption of draft law No. 7055, considering its importance for financial stability.


During the meeting, the Financial Stability Board also discussed the prospects for the Deposit Guarantee Fund (DGF) to settle debts due to the State Budget. In particular, to ensure its further effective debt servicing on borrowings used to make payments to depositors of insolvent banks, the DGF proposed to authorize it to make early repayments to the Ministry of Finance.  As a result of the discussion, the early repayment initiative has been supported and the Board has made a decision that effective resolution of this issue requires a relevant act to be adopted by the Cabinet of Ministers of Ukraine.


“We find it essential that the Financial Stability Board has supported our proposal regarding partial early repayment of the DGF’s debt to the Ministry of Finance. The issue will be submitted for consideration of the Cabinet of Ministers of Ukraine,” said Kostiantyn Vorushylin.



For reference


The Financial Stability Board was established by a presidential decree in March 2015. The Board is comprised of the Governor of the National Bank of Ukraine, the Minister of Finance of Ukraine (co-chairs of the Board), the Head of the National Securities and Stock Market Commission, the Head of the National Commission for State Regulation of Financial Services Markets, the Managing Director of the Deposit Guarantee Fund, the Deputy Governor of the National Bank of Ukraine, and the Deputy Minister of Finance of Ukraine.


The Board provides a forum for professional discussion of systemic risk posing a threat to the country’s financial stability. The next regular meeting of the Board is scheduled for April 2018.


Last modification   23.01.2018