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38 billion problems

The National Bank of Ukraine still has not transferred to the national budget 38.164bn hryvnyas of its 2015 revenues, because the central bank's council that has to approve the transaction has not been formed. The president has not nominated his representatives to the council. Why does it take him so long?

Back in 29 April, the National Bank of Ukraine announced plans to transfer 38.164bn hryvnyas from its 2015 earnings. This amount is indicated in the NBU's consolidated financial reports. These funds can be transferred to the budget after the NBU's council adopts its financial statements. Yet, the problem is that the powers of the Council of the previous tenure expired on 10 September 2015, while the new composition has not been formed.

The NBU Council is composed of four representatives of the Verkhovna Rada and four representatives of the president. The Council also automatically includes the governor of the National Bank, whose candidature is submitted by the president and approved by parliament. On 7 July 2016, the Verkhovna Rada by its resolution №4324 approved four own representatives, while Mr. President is still taking his time.

38bn hryvnyas is a whole lot of money. It is almost 5.6 per cent of total national budget expenditures for 2016. For comparison, the State Motorway Agency plans to spend less that 20bn hryvnyas this year. This sum is enough to fund the SBU, Prosecutor-General's Office, Ministry of Justice, Ministry of Culture and a few smaller agencies. If the money is not transferred to the national budget, the expenditure part of the budget for 2016 will have to be drastically cut.

Petro Poroshenko used to serve as deputy chair of the NBU Council in 2000-2004, so knows the ropes very well and obviously plays a game of his own. First and foremost, the delay in the transfer of this huge amount creates problem for Prime Minister Volodymyr Groysman, whom the media have long considered a president's man. Or maybe Borys Lozhkin was not that wrong when called Groysman an independent political player?

It cannot be ruled out either that Poroshenko will use the 38bn sum as a lever for pressure on the government the way the IMF uses its tranches to advance reforms? The only difference is that the IMF reform program is written down in documents, while Poroshenko's plan is anyone's guess.

Is it about reshuffles in the government? Or is it a tool in the struggle for control over the operator of the national gas transportation system? Or maybe it's about the formation of the national budget for 2017? Or carrying out privatization? Potential conflict situations are so numerous that one cannot say for sure.

"There is certainly a menu that is being discussed," one senior official suggested in a private conversation. The problem is about personnel decisions, speculated a member of the Budget Committee. "We've been told it is some kind of a technical issue," the NBU Governor Valeriya Hontareva said at a recent press conference.

Most likely, the 38bn hryvnya problem will be safely resolved and the money will be transferred by the yearend. Finance Minister Oleksandr Danylyuk has stated on the Economists talk show on that Poroshenko has already decided on his candidates to the NBU Council. The problem is, though, that in theory this amount may create a substantial pressure on the hryvnya by the end of the year, further weaken the national currency and push the prices of imported goods up.

The deputy governor of the NBU Oleh Churiy assures that nothing like this is going to happen. Firstly, the amount will be transferred in tranches. Secondly, the Ministry of Finance has to pay off government bonds and coupons worth 31bn hryvnyas. And finally, commercial banks need to repay sizeable loans. "We believe, therefore, that the transfer of 38bn hryvnyas will be largely mitigated by these factors," argues Churiy. Shall we believe him?

Andrii IanitskyiAndrii Ianitskyi, ​Business editor at
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