Ukraine is receiving less and less foreign currency. How does this threaten the hryvnia?

Since mid-summer, the National Bank has been reporting a widening balance of payments deficit.

While in August 2022, the current account balance was USD 1.9 billion, in August this year, it was USD 2.2 billion.

The significant deficit was due to a decline in exports and lower partner revenues.

For the first factor, it is crucial to how well the new sea corridor will work without Russia’s participation, our senior economist Yurii Gaidai comments for Forbes:

“If the corridor expands, grain, ore, metal, etc. will follow. If it does not expand, exports will remain at the current level. Imports are not so dependent on the openness of ports – these are either compact consumer goods or energy.”

As for financial support from allies, the necessary funding will be found this year.

“If the planned USD 3.3 billion from the US does not come, the Ministry of Finance will replace it with funds from Japan. For the next year, Ukraine does not yet have finalised financial assistance from the US and the EU, although there are positive signals,” explains Olena Bilan, member of the CES Supervisory Board and Director of the Dragon Capital Research Department.

What will happen to the hryvnia?

Under the current regime of “managed flexibility”, the National Bank is influencing the currency market with significant interventions. The regulator has enough reserves to minimise the risks of a balance of payments deficit.

However, there is also a need to finance the budget deficit. Therefore, devaluation is inevitable if Ukraine does not receive sufficient assistance from its partners.

“The NBU can always reintroduce currency restrictions and continue intervening in the foreign exchange market. But we need to finance the expenditures on a monthly basis,” says Yurii Gaidai.

Source: Forbes