Recent reports indicate the IMF is pressuring Ukraine’s National Bank to devalue the hryvnia. The issue has sparked broad discussion and is viewed through two lenses: communication with Western partners and its impact on Ukraine’s economy.
For months, the hryvnia has remained relatively stable against the dollar. Investors in long-term bonds have seen strong returns. The lack of devaluation has helped curb inflation, but it’s lowered potential budget revenues from a weaker currency.
Last year, similar pressure was observed during budget planning. Devaluation could support the budget by boosting import VAT and reducing debt burden, but would also act as a hidden tax on holders of hryvnia savings and increase prices for imported goods.
Throughout the past year, the exchange rate held at 41-42 UAH per dollar. The Central Bank followed a managed flexibility policy which maintained stability. However, hundreds of millions of dollars were spent weekly to support the exchange rate, using foreign reserves and international aid. Ukraine’s significant trade deficit adds further pressure to the currency market.
Exporters, especially those trading with the EU, face new European regulations and export blockades. Gradual devaluation could help Ukrainian exporters remain competitive, but would raise import prices. There’s significant inflation risk given Ukraine’s reliance on imports.
The hryvnia-euro rate has risen as the dollar weakens globally. A sharp devaluation could cause runaway inflation, so the Central Bank is cautious. Still, currency market imbalances persist and must be addressed gradually.
Forecasts for 2024 indicate a probable 10% devaluation, with a 45-46 UAH per dollar corridor. This could stabilize the budget and support exporters, but also brings risks to price stability. The Central Bank continues to balance currency support against macroeconomic challenges.
