Hryvnia strengthens by 9.1% against U.S. dollar this year - Danylyshyn

"On August 1, the official dollar exchange rate reached a record low over the past three years - UAH 25.02. A serious strengthening of the hryvnia is linked to a number of reasons, one of the most important ones being a sharp increase in the volume of government bonds purchased by non-residents," Danylyshyn wrote on his Facebook page.

He noted that since the beginning of the year, the portfolio of government bonds has increased by 13 times, and the total volume of investments of non-residents in government bonds as of the end of July has reached $3.6 billion. Non-residents began to buy government bonds at a fairly high pace in the summer, he added.

"How to evaluate such a strengthening of the national currency? Is the strengthening of the hryvnia a serious cause for fear or, vice versa, a positive signal for the economy? There is no definite answer. The depreciation of the dollar leads to cheaper imports. Accordingly, we have a positive factor for a reduction in inflation, which has already been reflected in deflation for June. Given that a reduction in inflation is a priority for the National Bank, it can be argued that the strengthening of the hryvnia is a positive signal for the economy. Given that much of the technological equipment and raw materials is imported to Ukraine, hryvnia strengthening has a positive impact on industrial inflation that in a certain period of time will have a further positive impact on consumer inflation," Danylyshyn said.

He noted that in addition, in June-July, Naftogaz pumped large volumes of natural gas into underground storage facilities and, with a stronger hryvnia, the cost of buying gas was lower. The repayment and servicing of foreign currency-denominated external debt costs cheaper when the hryvnia strengthens. For example, it helped save money in May, when external debt payments totaled about $1.7 billion. But there is the other side of the coin. Cheaper imported goods in hryvnia equivalent mean a reduction in tax revenues (import VAT, excise duty, customs duty). In addition, the depreciation of the dollar means a worse situation of exporters, because their income, expressed in national currency, decreased. This, in turn, leads to a decrease in tax revenues from the activities of exporters.

"It turns out that the strengthening of the hryvnia is both a positive phenomenon and at the same time a negative phenomenon for the economy. The National Bank is not worried about this. In its system, the strengthening of the national currency is a movement in the right direction. But what about the Finance Ministry for which it does not do any good in the most important issue - the implementation of the revenue part of the state budget? The point is that the budget for the current year was calculated on the basis of the exchange rate of 29.4 hryvnias per dollar. A significant strengthening of the hryvnia seriously complicates the fulfillment of the revenue part of the budget," Danylyshyn said.

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