The Ukrainian parliament passed a law to strengthen the independence of the National Bank of Ukraine (NBU) on Oct. 19, fulfilling part of Ukraine’s requirement to obtain the next $700 million tranche from the International Monetary Fund (IMF).
A total of 255 lawmakers out of 423 supported the bill in the second reading.
The new law limits the powers of the NBU Council, an advisory body that develops monetary policy and evaluates the central bank’s activity. This body, composed of members appointed by parliament and the president, has frequently been at odds with the bank’s governance in previous years.
The law reduces the influence of the council, which will no longer be able to evaluate the impact of the NBU’s policy decisions and its governance.
It also introduces a code of ethics for NBU employees and clarifies the grounds for dismissal of the head of the central bank and their team.
People who had been prosecuted or who headed a bank that the NBU has declared insolvent will not be able to become NBU council members.
The central bank will no longer have to provide the Ministry of Finance with a clear profit forecast when preparing the state budget, which strengthens the banks against political meddling.
However, rumors about the potential dismissal of Kyrylo Shevchenko, the NBU governor, may undermine the law’s effect on the IMF.
“I am not sure where to place those rumors about Shevchenko getting the chop with the program’s focus on central bank independence,” Timothy Ash, the longtime London-based Ukraine analyst, told the Kyiv Post.
President Volodymyr Zelensky wants to replace Shevchenko, according to three people familiar with his plans, Bloomberg reported on Oct. 18.
Read also: Bloomberg: Zelensky wants to replace Kyrylo Shevchenko as NBU head
The NBU didn’t confirm the rumors about Shevchenko’s replacement. “The governor of the National Bank continues to work, following the Ukrainian laws,” the press service of the NBU told the Kyiv Post. “The National Bank has many important tasks ahead.”
Zelensky has publicly questioned Shevchenko’s performance and even said that he regretted appointing him.
“Everyone makes mistakes. Kyrylo (Shevchenko) is my big personnel mistake,” Zelensky said during a July meeting with the NBU employees who resigned, complaining about the bank’s leadership.
According to a Kyiv Post source who was not authorized to talk to the media, Zelensky postponed Shevchenko’s dismissal because Ukraine was still negotiating with the IMF about the next $700 million loan tranche.
The bank’s independence has been requested by the IMF, which is close to resuming lending to Ukraine under an existing $5 billion arrangement.
Although the December deadline is close, Ukraine has only received $2.1 billion within the IMF’s $5 billion program signed in May 2020.
On Oct. 18, the IMF announced a preliminary decision to allocate a $700 million tranche to the Ukrainian government and extend the current financing program until mid-2022.
Ukrainian authorities expected to receive the second $700 million tranche in August, but the IMF said that the country’s efforts to reform weren’t strong enough.
Further lending is contingent on Ukraine executing a number of policies that include financial stability, central bank independence and structural reforms to tackle corruption.
Read also: IMF takes another step to unlock renewed lending to Ukraine
