Ukraine and the international monetary Fund tentatively agreed to a new three-year cooperation program, “Naftogaz” has reduced tariffs for the population, and the state statistics service reported inflation slowing to a six-year low – are the main economic news this week.
The second week of December was cause for optimism about the state of our economy. So, Ukraine and the international monetary Fund have reached agreement at the staff level (Staff Level Agreement) on a new three-year cooperation programme with a volume of 5.5 billion dollars.
In a telephone conversation with President Vladimir Zelensky, managing Director of the IMF Kristalina Georgieva noted the progress in promoting reforms in Ukraine and implementation of government economic policy.
According to the Ukrainian President, the new cooperation program with the IMF will allow to accelerate economic growth, eradicate corruption, and improve the welfare of every Ukrainian.
“We are not satisfied with the current pace of economic growth, and therefore to accelerate the growth of the economy we are working with our international partners we will continue reforms to catch up with our neighbors in terms of economic development and prosperity,” stressed the head of state.
Meanwhile, the decision on the new program have not approved the Fund’s Board of Directors. The national Bank of Ukraine expects a verdict in the first quarter of 2020.
“So the chart of meetings of the Board of the International monetary Fund, that this year’s decision on the new program will not. But, according to the schedule, it can be in the first quarter of next year”, – said the head of the NBU Yakov Smoliy.
The IMF still find it difficult to name the date of the Board of Directors, since it depends on the fulfillment by our country of preconditions.
At the same time, the IMF agreement, though preliminary, has allowed Ukraine to agree on macro-financial assistance from the European Union. Zelensky and European Commission President Ursula von der Leyen agreed on the steps required for disbursement of the second tranche of macro-financial assistance in the amount of 500 million euros.
Ukraine, as reported in the President’s Office, will receive the money “soon”, but obviously not earlier than the first tranche under the new IMF program.
The reduction in gas tariffs
This week, an event occurred which could not fail to please the Ukrainian gas consumers. National joint stock company “Naftogaz of Ukraine” has reduced the price to the public of up to 4277 hryvnia per thousand cubic meters in December. This is 13 percent below the level of the regulated price of gas, which was in November of the current year (4899 hryvnia per thousand cubic meters without VAT, margins of gatsbies and transportation costs).
According to the company, the price in December 2019 fell in accordance with the declared value of customs cleared in November gas. Moreover, this month the cost of natural gas was even lower than on the terms of the offer from Naftogaz “gas supply” (4874 UAH per thousand cubic meters).
Customers who planned in December to use gas stock, will be able to pay online at a lower price. Or, if you prefer, you can use a prepaid volumes of gas supply (up to 31 March 2020 inclusive). Money for prepaid, but unused volume will return the consumer to his account in full.
Besides, “Naftogaz” has determined the final guaranteed price of gas for the population in January-April of 2020. At current transport rates, it is including VAT range from 7.2 to 7.8 UAH per 1 cubic meter – compared with the 8.5 hryvnia per 1 cubic meter in the first quarter of this year.
The guaranteed price of gas will act as to the supply of gas to household consumers and heat producers, which will allow to avoid a sharp increase in the cost of providing heat and hot water.
“From January 1, 2020 and until the end of the heating season, all households and heat producers will automatically receive gas at a guaranteed price. For this from consumers no action is required, the additional agreements or the prepayment,” – noted in the “Naftogaz”.
This mechanism will prevent possible tariff jump, even in the event of termination of Russian gas transit through Ukraine from January 1, 2020. While any user may refuse the proposed guaranteed prices and choose the monthly market price.
Negotiations on the transit
Early this week, there had been important for our country meeting of the “Normandy format”. At the Elysee Palace in Paris took place negotiations of the President of Ukraine Volodymyr Zelensky, the President of France Emmanuel Makron, Federal Chancellor of Germany Angela Merkel and Russian President Vladimir Putin.
Although the main issue on the agenda was the fate of Donbass, the leaders of Ukraine and Russia are not spared and gas issues.
Zelensky at the meeting announced the chance to sign a new transit agreement with Russia on better terms than they were before these negotiations. According to him, it is about the contract for one year, and for a few years.
“It is very hard when one side insists on one year, and we insist on ten. I think what we’ll find in the middle. I think so,” – said Zelensky.
In turn, the Executive Director of “Naftogaz of Ukraine” Yuriy Vitrenko said that Zelensky and Putin “agreed to continue to negotiate,” and noted that the negotiations are conducted in bilateral and trilateral format.
And already on 13 December in Vienna has held transit talks between “Gazprom” and “Naftogaz”. According to their results, Vitrenko wrote in Facebook that the parties agreed to continue discussions on options for extending the period of transit.
“We agreed to continue to handle the options for the continuation of transit. It is too early to talk about a consistent option, but we take the most constructive position. Active work continues,” – said Vitrenko.
The existing transit contract, “Naftogaz” to “Gazprom” ends on 31 December 2019, after which the Russian monopolist can minimize or even stop the transit of gas through our territory.
The fall in inflation
Important economic news this week was the report of the civil service statistics about reducing inflation. In November, 2019 it in annual terms compared with November 2018 amounted to 5.1 percent – the highest in the last six years.
For comparison: at the end of 2018, inflation in Ukraine in annual terms slowed to 9.8 percent from 13.7 percent a year earlier.
This year, the downward trend of inflation was visible from month to month: if in September it was 7.5 per cent in annual terms, in October slowed to 6.5 percent.
Following the statistics, the NBU has published a more optimistic forecast that inflation by the end of 2019 in Ukraine will be 5 percent plus/minus one percentage point, that is, the rise in consumer prices will slow to a six-year low.
Earlier, the national Bank forecast that inflation in our country by the end of the year will slow down only to 6.3 percent, and the placket of five per cent will be taken only in 2020.
Another rate reduction
The achievement of the inflation target gave reason for the Central Bank to ease monetary policy. Dec 13 NBU has lowered the key rate by two percentage points – to two-year low of 13.5 per cent per annum.
The rate declined for the fourth time in a row – this has happened in July, September and October, the last time the discount rate dropped to 15.5 percent per annum.
Prime Minister Alexey Goncharuk, called the regular decrease in the discount rate a measure of economic stability: “This is confirmation that the economy is stable and strong, in which citizens can without fear to save money in the national currency – the national currency, and business to invest in the future”.
According to Goncharuk, the decrease in the discount rate means that the national Bank sees no threat to low and stable inflation. He also stressed that the record decline in inflation is not a one-time victory, and predictable and anticipated trend.
In NBU believe that the rate reduction was made possible not only because of the improvement in inflation expectations, but also because of the strengthening exchange rate of the hryvnia. The main sources of excess supply of foreign currency on the domestic market in the current year was income from Ukrainian exports due to the record harvest of grains and oilseeds, as well as the sale of funds obtained in foreign currency borrowing by public companies.
National Bank on Monday, December 16, has set the official rate of hryvnia to the dollar at the level of 23.50 UAH/USD., what is the maximum value almost for 4 years – from January 2016. The previous four-year max at the official exchange rate was set on December 13 – 23,56 UAH/USD.
Among other important events this week worth noting is the adoption by the Verkhovna Rada of the law regarding the establishment of “industrial bezveze” with the European Union. In particular, the document will allow the certification bodies to recognize the Ukrainian quality certificates.
In addition, the Ministry of Finance has published the text of the law on state budget for 2020 to limit deficits at the level of 94.3 billion, or 2 percent of GDP. According to the document, budget revenues next year will amount to 1,096 trillion hryvnias, and expenses – 1,182 trillion UAH.
Also, the Ministry of Finance launched the Open Budget portal with interactive budget system, which had not previously been in the public domain. Now every Ukrainian will be able to see the execution plans of both state and local budgets, as well as to obtain data on domestic and external debt.
Even this week, the state property Fund unveiled the complete list of all state facilities going for the “small” privatization. It includes 187 shares and property complexes, 139 “unfinished” 46 objects socially-cultural appointment and hundreds of other items.
The penultimate working week of 2019 promises to be no less interesting. In addition to celebrating the country’s Day of St. Nicholas, opening a long series of new year and Christmas holidays, the Parliament will hold the last in leaving year session week, the state statistics service will publish statistics for national GDP data by population. National Bank promises 20 December to introduce the updated banknote 50 hryvnia.