Necessary to treat gold stockpile, FX reserves as sparingly as possible – first deputy NBU governor

The economic outcome of March for Ukraine in terms of the impact of the war are still distorted due to pre-war inertia, fiscal risks will grow, and in such conditions it is important to take care of the international reserves accumulated in recent years, First Deputy Governor of the National Bank of Ukraine (NBU) Kateryna has said.

"According to various estimates, we have already lost 35% to 50% of our GDP today. We understand that fiscal risks are very serious as never before. There is a goal to prevent destabilization on the financial and macroeconomic front. Today, we need to treat our gold and foreign exchange reserves as sparingly as possible," she said at Cocktail with Deloitte devoted to Ukraine's financial security during the war and after the victory.

Rozhkova recalled that the current $28 billion in international reserves is a good reserve accumulated after the Revolution of Dignity, when a "practically empty acRozhkova count" was received in February.

"Today, the statistics are slightly distorted. March was still lived by the inertia of peacetime: exports were still taking place all February, the economy lived in a peaceful scheme almost until the end of February. It is already April, and it is already clear that exports have been reduced very much. It is physically impossible even to deliver last year's harvest – the ports are blocked," the first deputy governor of the National Bank said.

According to Serhiy Budkin, an investment banker and managing partner at FinPoint Investment Advisers, who participated in the discussion, the main problem that the banking system will face and which does not depend on it is probably the change in the structure of the balance of payments during the war and after it. He explained that the main sources of currency before the war were the export of agricultural and mining products, transfers from compatriots and the work of the IT sector. However, now the export of the mining and metallurgical products will be largely impossible due to the destructions in Mariupol. The problem of exporting other raw materials, according to Budkin, does not yet have a systemic solution in the conditions of blocked ports.

He said that many Ukrainians have left the country, and remittances from compatriots will fall. Only in IT, one of the four main sources of foreign exchange inflow, the situation begins to recover and demand returns. According to Budkin, 60-70% of mid-2021 sales will be restored.

Summing up, the investment banker said that thanks to a sufficient margin of confidence within Ukraine, achieved in recent years of stability, and the right actions of the NBU and the authorities, such as a 100% deposit guarantee, the Ukrainian banking system coped well with the outbreak of the war. Budkin said that in March of this year, the National Bank sold $1.7 billion in March, which is less than in April 2014, and the problems of the balance of payments are closed by the inflow of funds from the financial account from Ukraine's Western partners.

At the same time, the investment banker said that based on the history of wars over the past 150 years, when planning, one should proceed from the assumption that the war unleashed by Russia can statistically last 15-18 months.

"There is a lot of stock in Russia, military, economic, despite the sanctions. And it could be a year or a year and a half – I don't know, I'm not an expert in this. You don't need to wear rose-colored glasses… We are optimistic, we will win, but there will be a hard victory, including on the economic front," Rozhkova said in turn.

According to her, it is necessary to understand that it will be difficult in the financial system, in particular, the loan portfolio will deteriorate, capital will decrease, liquidity inflow will decline. At the same time, Rozhkova expressed confidence that the banking system would continue to work.

"We will use our gold and foreign exchange reserves until we get regular assistance and the economy recovers… We have already bought [UAH] 20 billion of our (war) bonds, in fact we did it with the help of our gold and foreign exchange reserves. This will affect the inflation rate, and it will grow. We must understand this," the first deputy governor of the National Bank said.

Speaking about the current situation in the banking system, she said that since the beginning of the war, the volume of household funds has grown and the liquidity of the system is high – banks hold UAH 140-160 billion only in NBU deposit certificates. In addition, more than 70% of bank branches are open and accessible, the regulator added.

Rozhkova said that the structure of expenditures had changed significantly since the start of the war: at first, only food and medicine remained in them, but now e-commerce has begun to resume.

At the same time, she said that banks have resumed lending, especially to the agricultural sector. "Banks do not just lend, they have their own KPIs aimed at supporting the economy. This is a huge financial front that we all hold together," Rozhkova said.

The first deputy governor of the NBU said that, in parallel, active work is underway to attract funds from international partners, and since the beginning of the war, Ukraine has already received $3.6 billion in financial support.

Source: www.en.interfax.com.ua