Panel Discussion with NBU AND IFIs. 12th Annual Ukraine Investor Conference
Dragon Capital held its 12th Annual Ukraine Investor Conference on March 10-11 in Kyiv. The event gathered close to 300 guests—more than 100 international investors, local investors as well as top management of leading Ukrainian companies, who took the opportunity to gain fresh insights into the economic and political situation in Ukraine and communicate directly with government officials, representatives of international financial institutions and the country’s largest companies in order to make investment decisions.
Below please find highlights from panel discussion with NBU and IFIs.
Moderator:
Olena Bilan, Chief Economist, Dragon Capital
Speakers:
Valeria Gontareva, Governor, National Bank of Ukraine
Jerome Vacher, Resident Representative in Ukraine, IMF
Nicholas Burge, Head of the Trade and Economic Section, EU Delegation to Ukraine
Francis Malige, Managing Director, Eastern Europe and Caucasus, EBRD
Ivan Miklos, former Minister of Finance of Slovak Republic
Timur Khromayev, Head, National Commission for Securities and Stock Exchange
- Ms. Gontareva said her main achievement as NBU governor was transforming the central bank into a modern institution compliant with best European central bank practices. She noted reforms needed accelerating, with the NBU considering lifting the ban on dividend repatriation among its priorities. However, based on a roadmap agreed with the IMF, relaxing F/X restrictions is possible only after NBU reserves reach a certain level.
- Mr. Vacher praised the NBU for its substantial reform efforts, saying the quality of the discussion between the Fund and the Bank was drastically different from previous years. He said Ukraine’s main achievement last year was macroeconomic stabilization owing to prudent fiscal, F/X and monetary policies. Significant progress was also made in the energy sector, primarily reducing the deficit of Naftogaz Ukrainy.
He also said the IMF wants to see more progress on the anti-corruption front as Ukraine won’t be able to grow in a sustainable manner without addressing the issue. Besides the establishment of the National Anti-Corruption Bureau, there is also indirect impact of other reforms on the fight against corruption. For instance, the banking sector cleanup allowed for eliminating a lot of illegal deposit usage, which is another form of corruption.
- Mr. Burge spoke on EU-Ukraine trade ties. After the EU implemented autonomous trade measures for Ukraine in 2014, the EU-Ukraine Deep and Comprehensive Free Trade Area (DCFTA) took effect this year and will gradually open up the EU market for Ukrainian exporters in the course of seven to ten years. The EU’s growing share of Ukrainian trade (34% in 2015) was impacted not only by the DCFTA, but also by deteriorating trade with Russia, economic contraction, hryvnia devaluation, and falling commodity prices.
- Mr. Malige said Ukraine needed greater political will to carry out planned reforms. The EBRD invested over EUR 1bn into Ukraine in 2015 and penciled in another EUR 1bn for 2016. However, Ukraine is able to attract much more via the private sector if a better environment is built for investors. The biggest achievement for the EBRD was its cooperation with Naftogaz, which focused on both financing and policy changes. In 2015, the EBRD and other institutions worked with Naftogaz to fulfill the conditions required by the loan agreements, namely create a supervisory board of independent directors as well as introduce internal audit, compliance, anti-corruption and risk management functions. State-owned enterprises remain a source of major corruption, and decisive moves need to be made to privatize them. Budget revenue is not the primary goal of privatization. Privatization needs to be transparent so that professional managers can govern these firms and make them profitable.
- Mr. Miklos mentioned another of Ukraine’s hidden achievements, namely the restructuring and re-organization of the economy, which was partially driven by worsened relations with Russia, driving institutions and companies towards Ukrainian values and markets. Besides, there has been an improvement in public awareness among Ukrainians. On a negative note, Ukraine did not achieve a sufficient pace of reforms, especially in privatization. The key factors behind this failure are the lack of political will, ownership and communication of reforms.
- Mr. Khromayev said the main challenge for his commission was to build a proper securities market in a country where securities have historically been used for tax evasion and other shadow schemes. The goal is to kick-start the development of the non-banking sector, develop a proper regulatory framework (including the law on protection of shareholders’ rights), introduce proper price setting mechanisms for all financial assets, and expand or launch new instruments including futures.