Ukraine will no longer resort to “dangerous” monetary financing to fund its war against Russia, its central bank governor said, adding that an “open conflict” with the government over the issue had been resolved.

Andriy Pyshnyy, the 48-year-old head of the National Bank of Ukraine, said in an interview with the Financial Times that it had “created huge risks for macro-financial stability” when the bank was last year forced to print billions of hryvnia to plug a budget shortfall.

“It was a quick remedy, but very dangerous,” said Pyshnyy, who wears multiple leather and silver wristbands up his tattooed arms, as well as the standard hoodie now worn by Ukrainian officials.

The finance ministry had been unwilling to tap domestic bond markets or raise revenues instead. It has since changed course, paving the way for a $15.6bn loan agreed between the IMF and Kyiv last week, which still requires approval of the fund’s executive board.

An end to monetary financing, use of domestic bond markets and measures to increase tax revenues have been hard-wired into the IMF deal.

Economists feared Ukraine could fall into a hyperinflationary spiral last year because of money-printing to make up for delayed disbursements of financial aid from the EU.

Critics said the government should have instead tightened its belt, borrowed from Ukrainian banks and raised taxes and customs duties. Pyshnyy’s predecessor Kyrylyo Shevchenko echoed those arguments in an opinion piece in the FT in September, adding to tensions with the government.

Pyshnyy, a former banker who lost his hearing at aged 34, replaced Shevchenko in October.

On his first day in office he set out to repair relations with the government, meeting finance minister Serhiy Marchenko “until the late hours of the night”. They struck a deal, with the central bank adjusting its bank reserve requirements and the ministry offering lenders more attractive terms.

Pyshnyy said the NBU’s aim was to soak up excess liquidity by tougher reserve requirements and gradually return to a floating exchange rate.

He said the IMF had made a “revolutionary” policy change by agreeing to lend to Ukraine during a period of exceptional economic uncertainty caused by Russia’s invasion.

The IMF agreement would help to “ensure the coalition of donors commits to providing assistance of about $40bn” this year, he added.

Ukraine has a poor record of meeting the IMF’s conditions during a succession of bailouts. But Kyiv built confidence by reaching the goals set by the fund during a four-month “programme monitoring with board involvement” over the winter, Pyshnyy claimed.

He said the NBU would next month revise down its forecast for GDP growth in 2023 to just 0.3 per cent, after a 30 per cent fall over the past year, reflecting the impact of Russian missile strikes against Ukraine’s energy infrastructure over the winter.

The new forecast does not factor in any additional western aid for reconstruction, which Pyshnyy hoped would act as a “silver bullet” for the economy.


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