IMF puts pressure on NBU, proposing devaluation of hryvnia – media

The International Monetary Fund (IMF) is putting pressure on the National Bank of Ukraine to devalue the national currency, Bloomberg reports, citing unnamed sources familiar with the discussion of this issue.

"The IMF is highlighting the benefits of devaluing the hryvnia at a controlled pace as a move that could help shore up Ukraine’s strained finances by boosting budget revenue denominated in local currency, according to people familiar with the discussions," Bloomberg reports.

But officials with the National Bank of Ukraine are resisting such a move, citing risks to inflation and public sentiment, the people said on condition of anonymity as talks take place behind closed doors.

"A rift on economic policy presents a potential risk as Ukraine seeks to secure a fresh loan package from the Washington-based lender, with Russia’s war stretching well into its fourth year. Ukraine has received most of the $15.6 billion from the IMF program negotiated in 2023, with the two sides now in talks for a new package that could total $8 billion," Bloomberg reports.

Talks continued during the lender’s annual meetings in Washington this week, laying the groundwork for staff-level talks next month. Managing Director Kristalina Georgieva is planning to visit Kyiv to show support, bolstering Ukraine’s ambitions for unlocking additional funding.

"Central bank officials in Kyiv are reluctant to yield to IMF pressure, citing potential harm for the economy, the people said. The projected benefits are limited, since Ukraine’s budget relies significantly on direct international assistance, they said, while devaluation can also trigger inflation, which could wipe out the fiscal cushion," writes Bloomberg, also pointing to possible political consequences, since the public is sensitive to price fluctuations caused by financial crises that preceded the war with Russia.

The NBU and the IMF declined to comment on the hryvnia devaluation to Bloomberg.

The NBU suspended the floating exchange rate regime at the beginning of the full-scale invasion in February 2022, trying to prevent a sharp fall in the hryvnia. After the IMF completed the development of the aid package in 2023, the National Bank allowed fluctuations within a narrow range. Since then, the hryvnia has fallen by about 13% against the US dollar.