Continuing the issue of money to cover the budget deficit leads to depreciation of the hryvnya due to devaluation and inflation, and has a number of very negative, even catastrophic long-term effects for Ukraine, the governor of the National Bank of Ukraine (NBU), Kyrylo Shevchenko, said in an article for LB.ua.
"This option has a number of very negative, even catastrophic long-term effects," he noted.
In particular, it may lead to "a fall of incomes of the general population below the poverty threshold, destabilization of the financial system and, finally, to the loss of the country's defence capability".
According to Shevchenko, drastic measures are needed to reduce the budget deficit.
"No matter how unpopular they may look, their deliberate and controlled application is the most effective option for adapting the economy to a war of attrition and providing a basis for victory. Therefore, the authorities need to take responsibility and make unpopular decisions, explaining honestly to society the necessity of the appropriate steps," he pointed out.
He added that it is very important not to drag things out because the more imbalances are accumulating, the more difficult and painful future decisions will be.
He also recalled that rates on domestic government bonds, which the Ministry of Finance is dealing with, need to be increased.
If we do not raise the rates now and do not attract more money in the market, the negative effects of monetary financing and inflation described above will be much higher. It would be much harder and longer for the future generations to get the country out of this abyss of uncontrolled emission, devaluation and inflation, the collapse of the financial system, and the loss of defence capability," the NBU head said.
Yesterday MPs increased the budget spending by over UAH 270bn.
At the end of June, the NBU noted that the funds received from the sale of military bonds were not enough to service the existing debt.