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Nonresident Investors to Be Able to Repatriate Abroad Interest Received after 1 April 2023 on Domestic Government Debt Securities

Nonresident Investors to Be Able to Repatriate Abroad Interest Received after 1 April 2023 on Domestic Government Debt Securities

To minimize risks to Ukraine's macrofinancial stability in wartime, the NBU has been forced to update its decision, approved in May 2022, that enabled nonresidents, starting 1 April 2023, to repatriate abroad the funds invested in domestic government debt securities.

Based on consultations with ithe IMF and the Ministry of Finance of Ukraine, the NBU has decided that it would be optimal under current conditions to ensure that foreign investors can transfer abroad the interest payments received after 1 April 2023 on domestic government debt securities. However, with regard to the repatriation of principal repayments on these securities, the NBU is postponing a similar decision until a significant easing of security and macroeconomic risks.

Specifically, as the war against Ukraine rages on, the NBU in January 2023 once again revised its assumption about the duration of high security risks and expects them to moderate only after the beginning of next year. This assumption is significantly different from the expectations that prevailed in May of last year, when the previous decision was made. At the same time, to meet the commitments made in difficult conditions, the NBU is taking a step towards foreign investors that hold domestic government debt securities, by allowing these investors to repatriate the interest paid on these securities.

By NBU estimates, interest repayments on domestic government debt securities to nonresident investors, between 1 April and the end of 2023, will amount to the equivalent of about USD 120 million (at the NBU's official exchange rate).  The estimated amount may increase if nonresident investors make additional purchases of domestic government debt securities with interest payments due after 1 April 2023. However, such transactions will not put significant pressure on Ukraine's international reserves.

Instead, the NBU expects that by allowing the repatriation of interest payments, it will incentivize nonresidents to reinvest the repaid principal and accumulated hryvnia funds into new bonds. This will help develop the government bond market and ease the risks of direct monetary financing of the budget deficit by the NBU, as well as threats to macrofinancial stability.

Going forward, the NBU is determined to gradually ease its administrative restrictions and is making efforts to create appropriate prerequisites. The permission for foreign investors to repatriate interest on domestic government debt securities if such interest has been received after 1 April 2023 is a step in this direction. This measure is consistent with the general logic of the NBU's efforts to liberalize administrative controls.

The above changes and other amendments were introduced by NBU Board Resolution No. 29 On Amendments to NBU Board Resolution No. 18 dated 24 February 2022, dated 22 March 2023 and effective from 23 March 2023.

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