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Week’s balance: aid to affected in arms depot blast, NBU forecasts, and preparation for winter

The Ukrainian government allocated UAH 100 million to eliminate the consequences of the explosions at the military arsenal in Vinnytsia region and responded to the onset of the first wave of autumn colds by intensifying preparations for the heating season. The National Bank improved its outlook for the growth of the Ukrainian economy. The Antimonopoly Committee, responding to a sharp increase in petrol prices, started a probe on the market of petroleum product. These are the main economic news of the outgoing week.

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This week will long be remembered in Ukraine for an emergency in the Vinnytsia region, where at about 22:00 on Tuesday, September 26, a fire broke out and chain explosions ensued of artillery munitions at one of the depots of the Ministry of Defense, most likely as a result of sabotage.

According to Defense Minister Stepan Poltorak, some 83,000 tonnes of ammunition was stored there, of which 68 tonnes was ready for use. According to preliminary data, as a result of the incident, two people were injured.

The authorities reacted to the incident in an instance. On the night of September 27, Prime Minister Volodymyr Groysman arrived in a nearby Kalynivka where a field headquarters was established and doctors, firefighters and police forces were deployed. Traffic on nearby roads as well as railway communication in the potential danger zone was immediately closed. Electricity and gas supplies to nearby settlements were also cut off, and classes in pre-school and educational institutions were suspended.

By decision of the Ministry of Infrastructure, the airspace over Kalynivka was closed within a radius of 50 km. More than 2,000 personnel were involved in emergency response efforts, including more than 100 sappers, 284 units of equipment, 2 aircraft, and 4 fire trains.

More than 30,000 local residents were evacuated from the settlements in Vinnytsia and Kalynivka districts.

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Thanks to the concerted actions of the authorities and military, by 15:00 September 28, the territory around the military depot was cleared of explosive items, and the evacuees were allowed to return home.

On Friday, September 29, there were still single explosions of ammo on the territory of the military depot, but, according to the State Emergency Service, they carry no threat to the population. Electricity and gas supplies have been resumed. In order to prevent any potential incidents, the airspace over Kalynivka will remain closed until October 2, while the radius of the ban is reduced from 50 km to 12 km.

The Cabinet has already allocated UAH 100 million for the liquidation of the consequences of the emergency, which damaged about 2,000 houses, of which 16 are not subject to repair.

The incident at the military arsenal is being investigated with sabotage remaining the main version probed by the SBU security service.

Laconic Cabinet

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The incident near Kalynivka made adjustments to the agenda of the government meeting Wednesday, September 27. It only lasted 40 minutes, but the Cabinet had enough time to make several important decisions.

In addition to helping victims of the arms depot blast, the ministers allocated UAH 1.7 billion for the implementation of about 1,000 development projects in the regions, which are aimed at improving the infrastructure.

Also, the Cabinet of Ministers sent UAH 559 million to repay salary arrears to doctors, amounting to UAH 2.7 billion. According to Acting Minister of Health Ulyana Suprun, there is another UAH 1 billion in the ministry’s reserve for these purposes, while to pay off the remaining amount, the ministry will turn to local authorities.

Even if the government resolves the issue with wages of doctors, in general the situation with wage arrears remains alarming. In August the sum of the state's liabilities decreased by UAH 41.3 million but it still amounts to a stunning UAH 2.3 billion.

Weakening hryvnia and economic growth

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In the outgoing week, the National Bank questioned its earlier inflation forecast for the current year. The press service of the regulator said that the growth of consumer prices in Ukraine in 2017 may be higher than the earlier targeted 9.1%, which may force the National Bank to apply a more stringent monetary policy.

"Monetary policy must respond to changing fundamental factors. Therefore, we will carefully monitor that these temporary factors not turn into fundamental ones. In addition, inflation risks can be realized in the context of fiscal policy. If, as a result, we see high risks of non-return of inflation to our targets, then we will respond to this with a tight monetary policy," said Deputy Head of the NBU Dmytro Solohub.

According to the State Statistics Service, in August, compared to July, the country recorded a deflation of 0.1%, while in annual terms, inflation accelerated to 16.2%.

At the same time, the National Bank notes the continued growth of the national economy. "The economy of Ukraine was able to withstand a shock in the form of a break in trade and transport ties in the east of the country, and in the first half of 2017 it grew by 2.4%," the NBU reported.

The World Bank and the International Monetary Fund predict GDP growth of Ukraine in 2017 by 2%. Meanwhile, despite the economy growth, the national currency continues to weaken. On September 29, the National Bank officially lowered the hryvnia rate to $26.52 (September 28 - at $26.47).

Deputy Head of the National Bank of Ukraine Oleh Churii assured that this had nothing to do with the shift in the schedule for Ukraine's receipt of the next tranche of the IMF. According to him, a number of economic and psychological factors are putting pressure on the market.

"There is an increase in the volume of imports against the backdrop of economic recovery. In addition, speculations in the media regarding the expected devaluation of the hryvnia this fall affect the mood of the population, which in September has already increased the purchase of foreign currency, despite the trends that have been observed since year-start," he said, confirming the regulator's intention to continue gradual currency liberalization.

Among promising financial news of the outgoing week is that on September 26, Ukraine successfully completed the placement of bonds of the external state loan worth $3 billion. As a result, the State Treasury Service received $1.32 billion. The remaining part of the funds, according to the Ministry of Finance, was aimed at redeeming bonds of external government loans maturing in 2019 and 2020, totaling $1.68 billion, to reduce the peak load on the state budget to pay off foreign debts.

The Finance Ministry reminded that the funds received by the State Treasury will be used to finance the general fund of the state budget.

Issue of Eurobonds of Ukraine worth $3 billion at 7.375% became the first one in the country's history from the point of view of the borrowing period and the volume of raised funds. In addition, this transaction removes the risk of a sovereign default in 2019-2020.

Minister of Finance Oleksandr Danyliuk noted that the country's entry to the international capital markets had been laid down in the program of cooperation with the International Monetary Fund.

Petrol fever

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The outgoing week started with negative news on the petroleum products market - the retail price of gasoline and diesel fuel in many gas station chains by September 25 increased by an average of 30-60 kopiykas per liter. And on September 26, fuel went up by another UAH 0.1-1.5 per liter.

According to the analyst of UPECO company Alexander Sirenko, the rise in prices is caused by the increase in the cost of oil products on the European market, according to price indicators of which the Ukrainian market operates.

In the past week, the Antimonopoly Committee reacted to the rise in prices, stating that, most likely, the cost of fuel is growing for a different reason - due to anticompetitive concerted actions of operators, as evidenced by a synchronous increase in retail prices for gasoline and diesel fuel.

In this regard, the AMCU started to investigate the situation in the market. The Committee sent inquiries to the Fiscal Service to obtain information on the volumes and prices of oil products, their presence or lack thereof, as well as on the market deficit; to the Ministry of Economic Development - on changes in supply and demand in the fuel market; and to the Ministry of Energy - on the projected prices for fuel and the reasons for their changes.

Also, a request was sent to the companies which set the highest price level to provide information and explanations for the reasons for the increase in the retail price of fuel. According to AMCU, if they find signs of violations of the legislation on the protection of economic competition, appropriate measures will be taken.

Farewell to summer

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The government said that, judging by the weather forecast, it is possible that the heating season would start earlier than planned, and intensified preparations for a new heating season.

Vice Prime Minister, Minister of Regional Development, Construction and Housing Hennady Zubko said that the state of the country is 97.6% ready technically for the heating season.

Meanwhile, there is reason for concern for Kyiv residents as the local power generating company, Kyivenergo, reported that the readiness in Kyiv is only 52%.

It remains to hope that in the near future all the shortcomings will be eliminated, and the Kyiv residents will meet with the cold in warm apartments.

The next week will be just as full of important news. The main ones are expected from parliament, which will work in the plenary mode. People's deputies, finally, should put complete the judicial reform and decide the fate of pension reform, on which the allocation of the next IMF tranche depends.

Yelizaveta Korchemakha

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