A regular meeting of the Financial Stability Council chaired by Ukraine's Finance Minister Natalie Yaresko with the participation of Ukraine’s Prime Minister Arseniy Yatseniuk took place on 29 January 2016.

The Council members pointed out that the external environment has become less favorable for Ukraine’s economy and financial system in recent months amid the ongoing slide in prices for key Ukrainian export commodities, fresh trade restrictions imposed by the Russian Federation, including a ban on the transit of Ukrainian goods to through its territory to third countries. A sharp depreciation of EM currencies has taken away competitive price advantages for Ukrainian producers. These factors coupled with seasonal factors have led to a substantial decrease in export revenues in recent months and triggered increased volatility in the FX market in recent months. The impact of these factors is gaining momentum, posing key risks to Ukraine’s economic growth in 2016.

At the same time, the Council members pointed to an improvement in macroeconomic conditions, particularly a slowdown in inflation. Another positive news was that the government met its budget deficit target last year. The deposit growth is gaining pace, suggesting the recovery of confidence in the banking system.The NBU expects Ukraine’s GDP to resume growth in 2016 after two years of contraction.

The meeting participants underlined that the NBU and the Ministry of Finance of Ukraine should coordinate their efforts to achieve macroeconomic and financial stability.  In particular, the coordination of monetary policy and fiscal policy is crucial for the adoption of an inflation-targeting regime. “We have already embarked on the path towards the adoption of this regime. There is no other alternative for our country,” said the NBU Governor Ms. Gontareva. “We are firmly committed to pursuing a prudent fiscal policy and and mitigating fiscal risks.In particular, last year we successfully met our budget targets for the first time in many years.

The government will remain committed to a prudent fiscal policy in 2016. The general government deficit is projected to decline further to 3.7% of GDP,” said Ms Yaresko.

The NBU Governor also welcomed the Ministry of Finance’s return to the primary sovereign bond market. “The issuance of domestic sovereign bonds with longer maturities will shape a yield curve, which is a necessary instrument for implementing the NBU’s monetary policy,” underlined Ms Gontareva. 

Mr Yatseniuk pointed out that continuing cooperation with the International Monetary Fund, the World Bank and other partners is crucial for ensuring the financial stability.

For reference

The Financial Stability Council was established by the Presidential Decree in March 2015.   The Council comprises the Governor of the National Bank of Ukraine, the Minister of Finance of Ukraine (co-chairs of the Council), Head of the National Securities and Stock Market Commission, Head of the National Financial Services Commission, Managing Director of the Deposit Guarantee Fund, First Deputy Governor of the National Bank of Ukraine, and Deputy Minister of Finance of Ukraine. The Council meetings provide a forum for professional discussion of risks posing a threat to the country’s financial stability.