KYIV (Reuters) – Ukraine must preserve the independence of its central bank under the next governor as part of a $5 billion International Monetary Fund deal, the IMF’s country representative told a local news site in comments published on Friday.
National Bank of Ukraine Governor Yakiv Smoliy quit on July 1, complaining of “systematic political pressure”, weeks after Ukraine secured the IMF deal to fight an economic slump caused by the coronavirus pandemic.
His exit rattled the market, forced the government to abort a 12-year Eurobond placement worth $1.75 billion and raised doubts over whether international backers, including the IMF, would freeze loans.
Ukraine’s dollar-denominated bonds have been under pressure since Smoliy’s departure and fell again on Friday, with some issues losing more than 1 cent in the dollar to trade at levels last seen in early June.
The IMF’s Goesta Ljungman did not directly comment on whether Ukraine was violating the IMF deal but said “the fact that the management of the NBU openly says that it is subject to political pressure should be of concern to all.”
In the most detailed remarks from the IMF since Smoliy’s resignation, Ljungman said keeping the central bank independent was vital to maintain sound monetary and fiscal policies and sustainable economic growth.
“There are well-established links between central bank independence and economic performance,” he said in an interview with Liga.net.
He said a framework for central bank independence established in 2015 in line with best international practices had helped Ukraine recover quickly from an economic crisis in 2014-2015.
“The current Stand-By Arrangement is premised on the respect for this framework, and a continuation of the economic policies of inflation targeting, a floating exchange rate, accumulation of foreign reserve and strengthening of the financial sector,” Ljungman said.
President Volodymyr Zelenskiy, who is expected to nominate a new governor within days, said he respected the central bank’s independence. But he also called for lower interest rates this week to make loans affordable for businesses and individuals.
The central bank last month cut interest rates to 6%, the lowest rate since independence in 1991, but critics say it has brought rates down too slowly.
(Reporting by Natalia Zinets; editing by Matthias Williams, Larry King)