The 140th attention-grabbing ploy, amid a strong economy
We’re all doomed to watch President Volodymyr Zelenskiy’s latest TV project, called “The National Security Council.” Every Friday, journalists and observers are obliged to set aside time to find out what the producers in the Office of the President have generated for the nation’s viewers this time. Initially, it looked as though Zelenskiy had mastered easily-available policy instruments, such as sanctions on pro-Russian players, smugglers and so on. But, when little happened in the follow-up to the first issues of the new show, it became obvious that this is not about delivering policies, but about proactive management of public attention. Who wants people discussing missed election promises, two years after the president was elected? Instead, the Office of the President (OP) tosses out spectacular new plot lines for Ukrainians to speculate over for the following week. Every seven days, new catchy stories are proposed to grab public attention. Against this backdrop, there’s no need to worry too much about the colorful headlines Ukraine’s leadership happily provides. While real policy steps need to be the main priority, on this front the results appear to be a lot of noisy hot air.
We’ve seen three key developments over the past few weeks. First, Presidential Chief of Staff Andriy Yermak successfully replaced Naftogaz CEO Andriy Kobolev with one of his ex-deputies, Yuriy Vitrenko, who is much more amenable to Zelenskiy. The scandal that followed over how this was done was successfully hushed up, with the Ukrainian leadership once again proving that it’s not what you do, but how you present it. For the IMF, of course, this is just the latest headache. Second, three ministers were removed, as part of the belated spring cleaning during Zelenskiy’s second anniversary in office. No changes in policies are expected, since none of the ministers can run independent policy under the current leadership, which prefers swift, simple and showy solutions. Third, there’s minor progress on the IMF front. Two bills on the IMF to- do list passed their first reading. The first, a bill on the High Council of Justice, is critical for a reboot of the judiciary, but the key role of foreign experts remains undefined. The second bill would strengthen capital requirements for commercial banks. Both moves are recognized as positive, but it could take months to actually pass, and on their own are hardly enough to secure a second IMF review.
Ukraine’s economy is meanwhile demonstrating impressive statistics against a low baseline, with retail trade surging 30.9% y/y in April, and industry recovering by 13% y/y. We still have concerns about the economic outlook once the low baseline effect evaporates.
Inflation eased in April, but only slightly, down to +0.7% m/m or +8.4%. Ballooning prices are a huge concern for the government, and the Cabinet has already introduced a cap on gasoline prices. The NBU has allowed a substantial hryvnia strengthening amid minor appreciation pressures.
Meanwhile, budget collections are benefitting from the “inflation tax.” In May, revenues soared 61.6% y/y, removing the problems with local borrowings that MinFin has experienced over the last two months. Inflationary trends promise an easy budget year, meaning that the Office of the President will have little incentive to be quick and diligent in delivering on IMF requirements.
External accounts are performing better than expected, as export prices skyrocket. By April, current accounts reported a $1.1 billion surplus, albeit well down from the $3.5 billion surplus of a year ago. Both exports and imports are recovering quickly, but imports are performing below expectations. However, since April we’ve been seeing a strong revival of services imports, which could threaten external accounts.
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