Week's balance: Hryvnia strengthening, road repairs promised, and personnel reshuffles hitting high offices

Hryvnia entered a period of confident growth, the infrastructure ministry vowed further efforts to upgrade Ukrainian road network, while the Cabinet replaced the agrarian ministry's acting chief – these are the main economic news of the past week.

This week, the hryvnia pleased Ukrainians, showing strong performance. The national currency has grown from UAH 27.74 to UAH 26.96 to a dollar.

Deputy NBU Governor Oleh Churiy explained that the growth was due to the sale of foreign currency by the population, stable receipt of revenues from agrarian and metallurgy exports, as well as the purchase by non-residents of government bonds in hryvnias.

The population has been selling [$]10-15 million daily. In previous months, the population would buy more, but now the trend is different. We have fairly good revenue from export earnings," said Churiy, recalling last year's record harvest.

He also reported that the proceeds from non-residents as a result of the purchase of hryvnia bonds already amount to about $300 million, noting that the trend has been observed for the last three to four weeks. "Above all, this is a result of our tight monetary policy – we have a very high interest rate on the hryvnia," Churiy explained.

The National Bank also delivered some good news on Ukraine's international reserves, which as of the beginning of February remain at $20.8 billion, the maximum level over the last five years.

The government's debt payments in foreign currency worth $883.9 million were partially offset by proceeds from the placement of domestic bonds worth $620.7 million.

Also, in January, the National Bank replenished its reserves by purchasing foreign currency in the interbank foreign exchange market to the tune of $136.1 million.

Spring in forex market

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An inspiring news this week was the lifting of restrictions in the foreign exchange market. On Thursday, the Law "On Currency and Currency Transactions" came into force, providing for the easing of more than twenty restrictions, including, increasing the deadline for settlements under export-import contracts and allowing legal entities to freely use their accounts abroad, and non-residents – their accounts in Ukrainian banks.

Individual licenses for foreign exchange transactions are canceled, individuals are now allowed to purchase foreign currency online, while the limit is increased tenfold on foreign currency transfers abroad without the need for individuals to open accounts.

Also, businesses are allowed  to repatriate dividends for 2018 in the range of EUR 7 million per month and buy currency on any given day without a prior reservation of funds. From March 1, the rate of mandatory sale of currency by exporters will decrease from 50% to 30%.

Bankers polled by UNIAN said the easing of forex regulations would not have a significant impact on the Ukrainian hryvnia exchange rate in the short term, but could contribute to an increased volatility of the market amid instability.

Oleksiy Blinov, Chief Economist at Alfa-Bank (Ukraine), hailed the timing of the latest wave of liberalization in the forex market.

"Foreign exchange supply prevails in the forex market, which was caused by massive foreign investment in government bonds in hryvnias.  At the same time, the ratio of moderate market perception of currency risks and high interest rates on hryvnia resources give no incentives to hold foreign currency sales," he said.

Renewal of road repairs

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This week, Slawomir Novak head of the State Motor Roads Agency, Ukravtodor, announced the imminent start of a new season of large-scale road repairs, promising in a few weeks to begin scheduled inspections of roads renovated in 2017-2018.

According to the official, starting from 2018, all contracts with contractors for average-level maintenance of roads of state significance are based on the terms of a five-year guarantee, as well as a ten-year guarantee – for major repairs. In case defects are detected, the contractor shall remove them at its own expense.

This year, the government does not intend to reduce the pace of road works. For construction, reconstruction, and repair of roads of state significance in 2019, some UAH 20 billion will be directed from the total amount of UAH 34.4 billion on the roads of state significance laid out in the Road Fund. In general, more than UAH 50 billion is foreseen for the repair and construction of roads of local and national importance, which is a record sum for all years of the country's independence.

Minister of Infrastructure Volodymyr Omelyan has promised that within five years, the authorities wikk restore highways connecting the regional centers and fix the situation on main central motorways in each region of Ukraine.

He didn't promise ore, though. "After all, to restore all roads, the funding should be the same as in Poland – at UAH 200 billion per year. To restore from scratch – at least UAH 300 billion per year," said the minister.

Also, Omelyan recalled that during the cadence of the governments of Yatsenyuk and Groysman, more than 7,000 km of roads was restored.

"They all survive winters in perfect condition. Twice a year, we inspect the roads that have been reconstructed. Those roads that had not been repaired for decades, of course, are not getting better, "he said.

Personnel turmoil

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A number of important personnel changes took place in Ukraine's high offices, which affect the main branches of the economy.

On February 6, the Cabinet unexpectedly fired Acting Minister of Agrarian Policy and Food Maksym Martyniuk and appointed Olha Trofimtseva, former Deputy Minister of Agrarian Policy for European Integration, to replace him.

Martyniuk officially became acting minister in December 2018, while, in fact, he had been in charge of the ministry since the spring of 2017 after resignation of Taras Kutoviy.

Another important news was the official announcement of the dismissal of Oleh Prokhorenko, head of the largest state-owned gas company "Ukrgazvodobuvannya", of which rumors have long been spread.

National joint stock company Naftogaz of Ukraine announced they were terminating the contract with Prokhorenko on March 15. Andriy Favorov, leader of Naftogaz's integrated gas business, will temporarily be an acting chief at Ukrgavydobuvannia until the new head of the company is approved by the supervisory board.

The press service of Naftogaz noted that changes were taking place within the framework of the group's transformation and the establishment of divisions in the business direction.

Prokhorenko was appointed head of the company in 2015 by a government decision. Previously, he was a partner at McKinsey Ukraine consultancy.

However, a more high-profile cadre event this week was the ruling of the District Administrative Court of Kyiv banning acting minister of health Ulana Suprun from exercising the powers of the ministry head.

According to Suprun, the court forbade her, among other things, to authorize the minister's deputies to sign critical orders on customs clearance and distribution of medications or sending patients for treatment abroad.

Colleagues in Government, politicians, civic activists, and international partners of Ukraine showed major support for Ms Suprun. For example, the World Bank said they are counting on continued cooperation with her.

The second week of February also promises to be filled with events important for the economy and business. On Tuesday, businessmen and economists on the sidelines of the business forum set up by Dragon Capital investment company will meet with Prime Minister Groysman, while the State Statistics Agency on Thursday will report on foreign trade and foreign trade balance figures for 2018.

Ihor Orel

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