How can Ukraine ensure growth?

If National Bank of Ukraine continues with its current policy, reaching a proper pace of economic growth is impossible for Ukraine in the years to come
Date: April 28, 2017

If National Bank of Ukraine continues with its current policy, reaching a proper pace of economic growth is impossible for Ukraine in the years to come. It is critical to hearken to Ukrainian and international experts who recommend stimulating economic growth.

The targets set in the memorandum with IMF for the money supply in the economy confirm our fears. At best, we will have a 3% average annual growth until 2020. But after a 15% plunge in 2014-2015, such pace of growth would really just mean stagnation and entrenchment of poverty.

A group of academics at the banking department of Kyiv National Economic University have recently conducted a study that argues for the need to change NBU's monetary policy. It demonstrates that it is impossible, given the current structure of production and exports, to improve the citizens' welfare.

In order to change the situation, huge investment is necessary. Even according to the calculations by the Ministry of Economic Development and Trade, the necessary amount is estimated at 140 to 200 billion USD, and 30-40 billion have to be invested annually. But NBU continues reducing money supply in the economy. For instance, net non-cash emission in Q1 2017 was negative - National Bank took out more money than it emitted, as Valeriya Hontareva informed our Committee.

The experience of China, South Korea, India and other countries informs us that investment growth can also contribute to containing inflation by solving structural problems, including through import substitution. Moreover, it sends a positive message to external investors and thus, contributes to improving the balance of payments and expanding the foreign currency reserves of NBU.

In all countries that have shown good economic growth, expansionary monetary policy has been applied. As a result, net investment rose significantly (by about 45% in China, by about 30% in India and South Korea). Investment at the scale of 38.8 thousand USD per person allowed South Korea to double real GDP over 10 years.

Programs supporting real sector production exist in different countries with different cultures and economic histories.

European central bank has targeted long-term refinancing programs to stimulate lending to businesses. Bank of England has for two years been running a special refinancing program for banks lending to the real sector, in particular, to small and medium businesses. Similar programs are run by The People's Bank of China, Bank of Korea and many other central banks around the world. We have to join a similar program of NBU with the government programs and add programs at the local level, including programs connecting new businesses to the infrastructure for free.

This is one way to bring Ukraine's economy back to life.

Even on the website of NBU, there is information supporting the critique of the current economic policy of Ukraine by the international experts. For instance, a workshop was held at NBU where the experience of applying anti-crisis measures in Spain, Portugal, and Italy was presented.

European academics have concluded that budget austerity measures and contractionary monetary policy introduced in those countries in 2010 - 2014 did not help them achieve national debt reduction targets while limiting the pace of restoring their economies.

European experts have reached a conclusion that countries should focus on increasing income rather than on reducing expenditure because during the crises reducing national expenditure leads to significant negative consequences. Experts recommend stimulating lending by all means.

And now, let us think together how, when and using what means should we be doing this.

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