Next year, the Ministry of Finance of Ukraine predicts that the dollar exchange rate will be 41.4 hryvnia. Economist Evgeniy Dubogryz explains why the government is not happy with the Central Bank’s strengthening of the Hryvnia
The hryvnia is strengthening and this worries the finance minister. He said this at a public event and journalists quoted this, don’t be stupid. “We are worried about the strengthening of the hryvnia. We do not have any fundamental factors for this. This is a minus, for which we communicate with the NBU and the IMF. This is a minus for exporters. We foresee an exchange rate for next year.” 41.4 UAH/$1.”
At first glance, it even seems a little ridiculous – because the same NBU, for example, calls the promotion of exchange rate stability one of its achievements. At least in the context of reducing inflation. Or, to put it more simply, what the NBU is proud of is that cash and card rates do not deviate too much from official, fixed rates, then this is bad and a headache for the Ministry of Finance.
However, although this may seem absurd at first glance, it is actually quite understandable. Because the Ministry of Finance has a budget (state budget, because it also has only a budget forecast, but this is different) and in the budget the estimated exchange rate for this year costs 42.2 UAH per dollar and if the rate is less this is in the budget instead not to bring it and, how should I put it, it means a possible threat of attack on the minister in a known place. As a result, international aid and loans, which constitute a large part of the budget, amount to 42.2 percent in hryvnia and a different amount to 36.6 percent.
And if the budget is not fulfilled in hryvnia, because it is in hryvnia, then no one there will understand why, how and what has changed. It was not done, that’s it, we are looking for the guilty and punishing him severely. As is our custom.
So yes, for the Ministry of Finance, the rate is close to the official interest rate and the fact that there is no justification for increasing the official interest rate at the moment is a problem.
This is called conflict of interest. When exchange rate stability is important for the NBU, the absence of multiple exchange rates, or at least fewer of them. For the Ministry of Finance, it is important that the exchange rate is as close to the forecast exchange rate as possible, and preferably even slightly higher. In these current conditions; in others, this conflict of interest may appear differently and may not exist at all.
Why 42.2? Moreover, the answer to the general question of life, the universe and everything is plus zero or two. Because it was planned last fall. While there was a different world picture, a different financial situation, different inputs, there was still uncertainty about international support. At that time, there was neither an agreement with the EU nor an agreement with the IMF. Ah, even then they were quite actively firing on civilian infrastructure.
Overall, both 50 and 60 seemed realistic estimates for the exchange rate, given the introductory notes and the reality of the time. We settled on 42.2 and I called it the square of optimism. Then the situation changed in our favor, at least in monetary terms, an agreement on macro-financial assistance with the EU, an agreement with the IMF, niche assistance and other positive things appeared. Meanwhile, the forecast figures remained in the budget.
By the way, it turns out a little funny – the better the Ministry of Finance and the NBU work on agreements with partners, the faster and more money comes to us, the stronger the hryvnia, the stronger the hryvnia. The minister will be mad because he can’t meet the budget because the exchange rate is better than planned last year. It seems funny to everyone except the minister himself.
This means that when we talk about budget planning – which is necessary, of course – we often forget that the input data and the situation with war, finance and everything else sometimes change quite quickly. It simply becomes unimportant and it is not wise to get attached to it. Predictions that seemed good and accurate a year ago are no longer realistic; Most likely, what we have now regarding the exchange rate and state finances will again be considered unrealistic in a year.
No, medium-term planning is, of course, necessary, but this is not an end in itself, because it is impossible to predict everything accurately and it makes sense to change forecasts and guidelines, focusing on the situation, reality.
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Source: Focus
John Holton is a seasoned author and journalist, known for his expertise in economics. He currently works as a writer at 24 news breaker, where he provides readers with in-depth analysis and commentary on the latest economic developments. With a background in finance and a talent for explaining complex economic concepts in a clear and accessible way, John’s writing is a must-read for anyone interested in staying informed about the economy.