The key event of the
last week in the economy was the approval by the Cabinet of Ministers of its
priority action plan for 2016. The decision was taken at an extraordinary
government meeting on Friday.
"Our task now is to proceed with the implementation of the plan as
soon as possible," said Prime Minister Volodymyr Groysman and promised his
fellow citizens to report as early as July, urging ministers to get ready for
this.
The plan, which is more than 200 pages thick, published at the beginning
of the week, includes the areas of operation of all ministries and central
authorities. The Government has determined the main macroeconomic
objectives the reduction of the budget deficit to 3% in 2017 from today’s 3.7%,
and the growth of industrial production by 4% in the medium term against the
current level of 1-2%.
According to Deputy Prime Minister Stepan Kubiv, the plan provides for a
tax reform that simplifies the administration of value added tax, the single
social contribution and a personal income tax, but also contains measures to
simplify custom procedures for agricultural exports, liberalization of currency
regulation and copyright protection. In addition, Groysman’s Cabinet aims to
carry out privatization of the Odesa Portside Chemical Plant and Centrenergo
power generating company.
At the meeting with the businesses, head of government has promised to
introduce after the tax reform a moratorium on changes to the Tax Code for a
period of three to five years, continue the practice of public competitive selection
of the heads of state-owned enterprises and privatization of these SOEs, make
publicity a prerequisite for conclusion of public contracts, as well as ensure
the preservation of agricultural land turnover maintaining the existing system
of property rights.
In addition, according to Groysman, the Cabinet will make every effort
to reform the labor market and increase wages and contribute as much as
possible to attracting foreign investment.
"We can protect the investment, people will invest and create jobs.
Attraction of investments is one of the main priorities... Create jobs for
Ukrainians, and we, the government, we will work for you," the prime
minister said.
Customs
reform
Some provisions of the
plan of revival of the national economy the government has already started to
implement. In particular, last week, Cabinet approved a number of documents
required to start the long-awaited customs reform, without which Ukraine is
likely to fail to see any new investors.
In particular, the Cabinet of Ministers adopted a decision to implement
a "single window" custom simplifies custom clearance procedure on the
basis of a unified electronic database of regulatory authorities.
As the Minister of Finance Alexander Danylyuk said, the system combines
all types of control, including customs, sanitary-epidemiological, veterinary,
sanitary, phytosanitary, environmental and radiological, due to a unified
database. And now, instead of the seals and stamps of state authorities on
paper documents, control marks will be put into this common database. In
addition, the supervisory authority will have to make a decision within four
hours, otherwise the system will do it for them automatically.
In addition to introducing the "single window," the government
plans to oblige custom authorities to record on video or photograph the goods
and vehicles checked, to eliminate corruption and smuggling. Groysman assured
that the State Fiscal Service has all the necessary technical means for the
implementation of this initiative, which may be introduced as early as August
1.
Also, the Cabinet passed a resolution limiting the grounds for the
inspection of goods at the customs, which allows minimizing the damage caused
by so-called "tax squirrels" – corrupt officials who exercise
pressure on the exporters of nuts and other agricultural products. The Prime
Minister vowed to fight the “nut mafia” and control the law enforcers and the
implementation of the government resolution.
In addition, the Cabinet approved the draft law developed by the Ministry
of Finance on the introduction of an authorized economic operator, which will
simplify custom procedures for large companies long engaged in export and
import of the standard basket of goods.
Groysman also threatened the smugglers with the imminent creation of the
so-called "Black Hundreds," or interdepartmental mobile teams
consisting of customs officers, border guards, police and tax officials. This
decision can be taken at the next government meeting. Head of the SFS Roman
Nasirov promised that these groups can start their operations within a month.
Optimistic
National Bank
Last week, the National
Bank brought some good news, having decided from May 27 to reduce the key
interest rate by 1 percentage point, to 18%. As the NBU explained, rate
reduction for the second consecutive month was possible due to a steady decline
in inflation. The interest rate reduction was followed by a decreased rate on
deposit certificates and NBU refinancing rate, which will push the banks’
interest rates on deposits and loans.
Regulator's decision was expected for the market. "I believe that
there are all the necessary conditions for the rate reduction, and the NBU
needs to lower the rate," member of the Ukrainian Society of Financial
Analysts Vitaly Shapran predicted on the eve of the NBU’s decision. Although
the rate cut is mathematically symbolic - only 1 percentage point - this NBU
decision has an impact on market expectations, confirming the lack of
significant risks for inflation and the central bank’s intention to continue
softening its monetary policy.
The situation on the currency market also remains calm. As NBU Governor
Valeriya Gontareva stated at a press briefing, the current account balance of
payments in Ukraine this April has returned to surplus after a deficit in
March, as due to improved situation on foreign markets for Ukrainian exports,
the average daily volume of currency supply on the interbank market grew from
$171 million in January to $231 million in May.
The population also continues to bring in the currency - net sales
of cash foreign currency since year start has reached $1.1 billion. This has
allowed the regulator since mid-March to carry out 26 currency purchase
auctions in the interbank market and a single intervention at a fixed rate,
which resulted in a net purchase of foreign currency by the regulator exceeding
$1 billion.
Given this calm in the foreign exchange market, the National Bank last
week has pleased the businesses with the next portion of indulgences in the
currency market. Since May 25, the regulator has simplified the procedure for
the return of foreign investment, allowing the investor to not file the written
confirmation of the actual receipt of currency in Ukraine.
On the proposal of the European Bank for Reconstruction and Development,
the NBU has simplified foreign exchange transactions on credit agreements
concluded by residents with the international financial institutions in
relation to control over risk activities. In another decision taken last week,
the National Bank reduced from two days to one day the required term for the
banks to deposit funds in national currency to purchase foreign currency on
behalf of their clients. The innovation will be introduced from June 1.
In addition, the National Bank once again announced a further easing of
restrictions. The NBU chief said the regulator planned to lift the ban on
repatriation of dividends and has already begun to assess their volumes.
"We are now processing the data provided by banks on their
accumulated dividends for 2014-2015. We do not see large amounts of dividends,
since these were not the most profitable years for business. Therefore, we hope
that we can satisfy all demand this year," said Gontareva warning that the
ban would be lifted after the resumption of cooperation with the International
Monetary Fund.
Ambiguous
statistics
Meanwhile, the
statistical data released last week are not clear enough. The State Statistics
Service reported that the growth of the industry in Ukraine in April 2016
slowed down to 3.5% in annual terms, while growth was recorded for the third
month in a row, after a trend reversal in February for the first time in the
last three years. The largest production increase compared with April of last
year was recorded in manufacture of coke and refined petroleum products – by
26%, metallurgy – by 15.5%, manufacture of rubber and plastic products – by
13.7%, pharmaceuticals – by 12.6%, coal and lignite mining – by 11.5%.
As noted by chief economist at Dragon Capital Olena Belan, the
indicators of the real sector in April indicate that the pace of recovery in
the export-oriented and consumption-oriented industries is low or close to
zero. "However, steady growth in the construction industry is encouraging,
supporting our view that the investment will be the main driver of economic
growth in the coming years. We expect real GDP growth at a moderate 1% yoy this
year, with further acceleration to 2.5% in 2017," the expert said.
It was pleasing to find out that the State Statistics recorded a
decrease in loss before tax at the large and medium-sized enterprises in the
first quarter by 6.6 times compared to the same period last year - to $58.6
billion. The share of unprofitable enterprises in the first quarter decreased
by 6.9 percentage points to 39.7%. The biggest share of unprofitable
enterprises was recorded in the sectors of arts, sports, entertainment and
recreation, real estate transactions, transport, warehousing, postal and
courier services.
Meanwhile, the banking system continues to generate losses: total loss
of n operating banks, excluding the insolvent ones, amounted to $11.5 billion
as of May 1, 2016. But at the same time, the NBU noted the positive trend,
since this figure is 17% lower than on May 1 of the previous year. A total of
34 operating banks recorded losses over four months of 2016, while at the same
time twice as many, or 75, banks made a profit in January-April.
New
bankruptcies
Despite the improved
performance, the banking system continues to go through painful purging. Since
the beginning of 2014, the NBU declared insolvent over 70 financial
institutions. Last week, the National Bank issued two decisions for the
withdrawal of banks from the market. While the first decision - on the
recognition of a small and unremarkable Smartbank insolvent due to the
non-transparent ownership structure - does not raise any questions, the second
case is a real thriller.
This is about Mykhailivskiy bank that the NBU urgently recognized
insolvent due to suspicious transactions with deposits of individuals.
According to the regulator, the bank has been problematic since December 23,
2015, and, apparently, has been making a significant effort trying to
resolve the issue.
As a result, head of Mykhailivskiy bank Ihor Doroshenko on May 20 left
his post, and the same day the bank limited the access of the NBU curator to
its database citing a “technical failure” and held a number of suspicious
transactions to transfer retail deposits from companies related with this bank,
increasing the load on the Individual Deposits Guarantee Fund by UAH 1 billion
– to UAH 2.6 billion.
The NBU has pledged to involve law enforcers in the investigation and
said it intended to challenge the additional burden on the Guarantee Fund. But,
apparently, the search for the perpetrators could be delayed, since on the day
when the bank was recognized insolvent, its key owner Viktor Polishchuk, who
also owns a home appliances retail network Eldorado, said that several days
ago, he sold his share in the Mykhailivskiy bank's capital to a group of
individual investors. In turn, former head of the bank Ihor Doroshenko from
May 23 took up the post of a chief executive officer at the Cyprus-based
PT Platinum Public Ltd, which owns Platinum Bank.
The major loser in this story of a “spectacular” bankruptcy is the
Individual Deposits Guarantee Fund, which over the period of May 24 - May 25
received a load of requests from the customers of the Investment and Settlement
Center on funds return. The depositors of this company concluded deposit
agreements via a proxy – Mykhailivskiy bank. The Fund has already warned the
applicants that there might be a big problem with funds return, as the company
named the Investment and Settlement Center is not a banking institution and a
participant to the Fund, therefore these deposits are not guaranteed by the
State.
In addition to trying to pull from the Fund an extra billion,
Mykhailivskiy bank considerably cleaned up their assets just a couple of days
before the introduction of provisional administration. It signed agreements on
reassignment to other financial companies of rights to demands on its loans.
Meanwhile, in addition to a standard care scheme of banks’ withdrawal
from the market, there emerged a new trend – self-liquidation on the initiative
of the owner. Last week, the shareholders of a small Finance Bank, the biggest
of whom is a citizen of Ukraine Oleksandr Dovhopolyuk (40% share) reported that
they could pass a decision on liquidation of this financial institution.
Previously, the decision on self-liquidation was taken by the shareholders of
Investment and Trust Bank, who are already waiting for the appropriate
resolution of the NBU.
The reason for the banks’ "suicide" may be a requirement by
the NBU to small banks to accelerate the replenishment of capital to the
minimum level of UAH 500 million. According to estimates of bankers, this
requirement can be a daunting task for a number of smaller financial
institutions. It’s good that at least some of them had the heart to quit in a
nice way, without disgraceful sham schemes against their investors and the
State, as it was with Mykhailivskiy bank, the history of which is far from
being over as new details are unveiling. There is no doubt that the Ukrainians
will expect the law enforcers to prosecute all perpetrators involved.
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