NBU presents foreign currency liberalization plan

The National Bank of Ukraine (NBU) has presented on Dec. 1 its concept of foreign currency liberalization with the gradual removal of cross-border currency restrictions. It’s aimed at removing an outdated FCY regulation adopted in 1993, according to the NBU. The regulator sees three stages of removal of restrictions.

At the initial stage, it will liberalize FCY export and import operations: removing limits on prepayment under import contracts (now set at USD 1 mln), remove obligations of exporters to convert part (65% now) of their FCY proceeds into local currency, cancel licensing of investments abroad, as well as remove FCY purchase limits for individuals.

At the next stage, the NBU is going to ease limits on the ForEx trade and net currency positions for banks, as well as allow early repayment of international borrowings and ease repatriation of money earned on domestic stocks and non-government bonds. In the final stage, the regulator will allow individual investments abroad.

The presentation contains no deadlines for each of the outlined stage. One of the key preconditions for liberalized FCY regulation is more efficient tax regulation, the NBU highlighted. Other important conditions include an ongoing program with the IMF, financial stability and controlled inflation (for the first stage), an affordable level of state debt and an “investment rating” for Ukraine (in the last stage).

Alexander Paraschiy: This conceptual plan is critical for rebuilding the system of foreign currency regulation in Ukraine. Its proposals have been discussed at the NBU for more than a year already and it’s a very good signal that they were finally presented to the public. However, this is a framework that faces an approval process for the mid-term (2-3 years) before possibly introducing new rules on the FCY market. Even if legislation is approved, it will take many months to implement the provisions. Nonetheless, the plan’s presentation is a very positive signal about the NBU’s intentions to move towards further liberalization. As it looks now, the key risks for the plan’s implementation is the lack of clarity surrounding the continuation of Ukraine’s cooperation with the IMF within the EFF program.

In 2016, we saw lot of steps taken by the central bank to ease the ForEx restrictions that were introduced in 2014-2015, and we expect the liberalization will go on smoothly in the next year too.