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The 2015 Budget

November 12, 2014

Currently the IMF is back in town – and as a lender of last resort, undoubtedly welcome in government circles in lieu of nobody else.

It arrives at a time when a programme (of sorts) is being – and is almost – thrashed out by the parties that will form the majority coalition.

Big ticket issues such as the abolition of MP immunity (less some form of parliamentary privilege whilst engaged directly in political matters) and the need to prioritise new election laws are agreed, amongst many other issues.  Perhaps a dynamic start to the next RADA session awaits by way of laws passed – if not by way of their actual implementation.

However, amongst those major issues, is the small matter of a budget for 2015.  Something that will be of interest to the wandering minstrels/mandarins of the IMF.

It appears the National Bank of Ukraine has already suggested that an exchange rate of UAH 12.95 = $1 act as the foundation of the Ukrainian 2015 budget to policymakers – whilst making clear that the NBU has but limited ability to step in and support the Hryvnia, and even less desire to do so.

“Our country will not live in the fixed exchange rate anymore.  This brings our country to neither the economic growth nor stability of the financial system.” – Valeriya Gontareva, Governor of the NBU.  Thus the position of the NBU is clear.

However, UAH 12.95/$1 may be rather optimistic – or not.

Yesterday the exchange rate on the street was UAH 14.50/$1.  Even with good news that will probably come from the IMF, the continued drip feeding of covering Ukrainian debt by Europeans, and whatever comes from the international funding and investment gathering soon, any additional market confidence in the Hryvnia is likely to be short lived as Kremlin troops and large quantities of hardware continue to flow into The Donbas.

Though it maybe prudent for the Ukrainian leadership to simply write-off any budgetary revenues from The Donbas for the purposes of planning for 2015 – it is far more difficult to write-off the effects of the anticipated expansion of the currently held turf outside the direct control of the Ukrainian authorities.  Whether that push comes now, or in the Spring, most expect it to occur – and Ukraine will clearly need to resist.

Such an occurrence, when/if it arrives, seems highly unlikely to support a UAH 12.95/$1 budgetary foundation.

It may very well be that  Ms Gontareva is privy to information that is kept from the public realm and that would make UAH 12.95/$1 quite reasonable for the suggested foundation of the 2015 State budget – and indeed it is to be hoped that is the case, for if a free-floating Hryvnia does have a mean value of UAH 12.95 over 2015, some form of stability will have been achieved far beyond the boundaries of economic and fiscal management..

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