Ukraine 2015 budget may employ UAH 17/USD exchange rate, PM says

Ukraine’s Cabinet of Ministers has not decided yet on the official hryvnia exchange rate for the 2015 budget and is considering approving a range of UAH 15.77-17/USD, said on Dec. 16 Prime Minister Arseniy Yatsenyuk, as reported by the Interfax-Ukrayina news agency.

“At the moment, we are estimating the budget based on two options: the current exchange rate, as defined by the National Bank of Ukraine (NBU), or a rate of UAH 17/USD,” Yatsenyuk said. “But we are waiting for NBU projections for the next year since according to the Constitution, the NBU is responsible for stability of national currency,” he added. The official rate was UAH 15.77/USD as of Dec. 16, while the interbank rate was in the range of UAH 16.0–16.25/USD, and black market rate exceeded UAH 20/USD.

Alexander Paraschiy: The hryvnia exchange rate is the most critical parameter for budget planning. The prime minister has to be more optimistic on the hryvnia’s 2015 prospects than commercial banks, which have already set their retail rate at around UAH 20/USD. Yet reaching the stable rate of UAH 17/USD will require, at minimum, extended cooperation with the IMF and subsequently, an inflow of foreign currency that it would guarantee. In turn, that will require the government’s approval of a realistic and low-deficit budget.

Therefore, the assumptions behind the state budget should be realistic, particularly the exchange rate and deficit. The level of the approved budget deficit, in and of itself, will indicate how much hryvnia will need to be printed in 2015, which will also be an indicator of currency stability next year. The IMF previously approved a 5.8% of GDP general fiscal gap for 2015 (including Naftogaz), though the authorities have yet to release the final draft of the spending plan for public discussion.