Ukraine’s central bank chief resigns in protest, IMF concerned

Ukraine’s central bank chief has resigned unexpectedly in protest against “systematic political pressure”, prompting the International Monetary Fund to say Ukraine must maintain the independence of the National Bank of Ukraine (NBU).

Yakiv Smoliy’s resignation on Wednesday, which was accepted by President Volodymyr Zelenskyy on Thursday, risks derailing a $5bn deal agreed with the IMF last month to fight an economic slump caused by the coronavirus pandemic.

“I’ve submitted my resignation appeal to the President. This decision has been taken as an answer to systematic political pressure that denied fulfilment of my duties as the Governor,” Smoliy wrote on Twitter.

“Let it be a warning for attempts to undermine institutional independence of the central bank.”

The central bank has previously complained of being subjected to pressure, including over its decision in 2016 to nationalise Ukraine’s largest lender, PrivatBank, which was formerly co-owned by businessman Ihor Kolomoisky, a backer of Zelenskyy.

Zelenskyy has denied any favouritism towards Kolomoisky and publicly expressed support for the central bank’s independence.

“The NBU is the most trusted institution amongst foreign institutional investors. Terrible news for Ukraine,” said Timothy Ash at Blue Bay Asset Management. “The future of the IMF programme must be in doubt. Who succeeds Smoliy will be critical”.

IMF’s reaction

“Under his leadership, Ukraine has made important strides in achieving price stability, amply demonstrating that an independent central bank is a key element of modern macroeconomic policymaking,” an IMF spokesman said in a statement on Thursday.

“That is why the independence of the NBU is at the centre of Ukraine’s Fund-supported programme, and why it must be maintained under his successor.”

Despite reassurances from Zelenskyy’s office on Wednesday, Smoliy’s resignation sent sovereign bonds down by more than two cents and the local hryvnia currency down to its lowest level since April against the dollar.

The negative fallout from Smoliy’s resignation prompted the finance ministry to say it was not going ahead with a planned offering of dollar-denominated Eurobonds.

Ukraine’s economy is expected to contract by about 5 percent this year because of the pandemic.