2020 is being ushered in with a slew of records for Ukraine, all of them linked to the currency market. The hryvnia has just finished its longest upward surge: with a few minor breaks, it’s been steadily strengthening since November 26, 2018. At the time, martial art had been declared in a number of oblasts in Ukraine because of the Russian act of piracy outside the Kerch Strait and the hryvnia fell to 29 to the US dollar on the cash market. For two-three days, there was a money panic. Now those who gave into it and rushed to buy bucks are probably kicking themselves.
The lengthy upward climb of the hryvnia led to the Bloomberg news agency calling it the strongest growing currency in the world in 2019. This really is a significant development, given just how deeply depressed Ukraine’s economy was just a few years ago. Moreover, the strong hryvnia has led to another significant achievement: in August, the average salary in Ukraine finally reached the dollar equivalent that it had reached in 2008 and 2013, before the two crises. Since then, the hryvnia has grown even stronger and the dollar value of wages has grown some more.
It would seem that currency records are a reason for Ukraine to be happy. If they had been the result of sustainable, fundamental changes in the domestic economy, then it would really be worth rejoicing over. But the key reason for the currency’s rise is financial, and not economic. 2019 saw a record inflow of foreign capital through purchases of government bonds. This is the fly in the ointment that undermines confidence that the idyll on the currency market can continue for long. If the situation remains uncertain, the expensive hryvnia will soon set the economy fermenting, which will ultimately restore balance to both the hryvnia and the overall economy. But it won’t be painless.
Unusual exports
In 2019, Ukraine restored its record for crops of both cereals and legumes: as of December 10, 75.2 million t were harvested, which is over 5mn t more than in 2018. The sunseed crop was also the biggest in the country’s history, hitting 14.6mn t. It would seem that this, too, was cause for celebration. Instead, Ukraine’s agribusiness was forced to radically change its sales strategy, which had a negative impact on the balance of the currency market.
In the last few years, Ukraine’s agricultural sector worked on a simple basis. Knowing that the dollar grew stronger every fall, while at the end of the marketing year, meaning May-June, world prices for foodstuffs tended to rise seasonally, they would take in the crop and store it at least until winter, when domestic prices were better, or until the end of the season, counting on the foreign market. But in 2019, the situation changed. From the beginning of the year, the hryvnia grew steadily, mostly driven by the inflow of foreign money in the form of state bonds. With every day, the dollar lost position on the currency market, causing the new crop to also lose value. This led to a kind of export frenzy. Every farm sector business tried to sell off its grains as fast as possible so as not to lose even more on the exchange rate.
The result has been very interesting: over July-October, Ukraine exported 19.2mn t of grains and 3.8mn t of oilseed, which was 45% and 73% more than during the same period of 2018 (see Quick sales). Within four months of the harvest, Ukraine had shipped out the equivalent of 75% of what it had shipped in the way of wheat for all of 2018-2019, and nearly 100% of the barley. Although the latest figures from Derzhstat are only for October, there is good reason to believe that this trend was similar for maize, a crop that is harvested towards the end of fall.
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