The price of “printing money”: in 3 years, the government can pay the NBU UAH 235 billion for OVDP
[ad_1]
According to the calculations of the National Bank of Ukraine, the state’s expenses for servicing emission government bonds may exceed UAH 235 billion in 2023-2025. The NBU bought these bonds from the Ministry of Finance during the “printing of the hryvnia” in the first months of the large-scale invasion of Russia.
Such calculations were provided by the National Bank in response to the request of “Economic Truth”.
“The expected estimated amount of interest payments in 2023-2025 for these securities will amount to UAH 235.4 billion, provided that the NBU discount rate follows the forecast trajectory“, the regulator notes.
What do payments depend on?
The regulator notes that these calculations are approximate, as the amount of coupon payments directly depends on the size of the discount rate.
“The amount of interest payments on military government bonds purchased by the NBU from the Ministry of Finance of Ukraine during 2022, which should be received by the National Bank for the entire period of circulation of these government bonds (25 years – EP), is currently unknown, as it depends on the average value of the NBU discount rate for each relevant annual period“, the regulator reminds.
According to government regulations on the issue of military bonds for the National Bank, the coupon size is calculated as the average value of the discount rate for the last 12 months before the date of payment of such coupon. Size accounting rate starting from June 2022 is 25%.
In the event that the accounting rate will change in accordance with previous forecast According to the NBU, the government will need to spend UAH 235.4 billion in the next 3 years to service the issuance of government bonds.
At the same time, the National Bank itself does not rule out that they can start reduce the discount rate earlier than expected. This can reduce the potential expenditure of the government on the servicing of emission OVDPs.
How much has the NBU already received?
The National Bank began “printing” the hryvnia at the beginning of March 2022, when deputies amended the law on the NBU, allowing it to buy government bonds. Then, in March, the NBU “printed” UAH 20 billion. In April and May last year, the volume of issuance increased to UAH 50 billion per month, and in June it reached UAH 110 billion.
The National Bank received coupons for the first bonds purchased last year from the Ministry of Finance in March of this year. The size of the coupon was UAH 2.2 billion. According to the NBU, the recalculation took place without delays and according to the state debt service schedule.
By the end of this year, the government will have to transfer another UAH 80.5 billion of coupon payments for OVDP to the National Bank, if the discount rate remains at 25% throughout the year.
What does the National Bank do with the received interest?
The coupon payments that the NBU receives from government bonds purchased from the Ministry of Finance are the regulator’s income and affect its profit.
According to the law, the NBU is obliged to transfer its profits to the budget. However, the regulator does this only based on the results of the reporting year and only after passing the audit of its financial statements. That is, the NBU will transfer the profit for 2023 to the budget only in 2024.
This means that if the NBU remains profitable, it will transfer at least part of the interest received from the government on OVDP back to the budget.
However, it is likely that the amount that the regulator will return to the Ministry of Finance will be less than the amount of coupons received. After all, in addition to income from OVDP, the National Bank also incurs expenses (for example, for interest payments to banks on deposit certificates).
What are the terms of borrowing?
The terms of the military bonds that the NBU bought from the Ministry of Finance last year were as follows: maturity – 25 years, service rate – floating, depends on the NBU discount rate, nominal value of one bond – UAH 1,000.
In general, the government resolution allowed the Ministry of Finance to borrow UAH 400 billion from the National Bank last year by selling OVDP bonds. During 2022, the NBU financed the state for the entire amount specified in the resolution.
The government did not adopt a new resolution that would determine the conditions for borrowing funds from the National Bank in 2023. However, the “printing of the hryvnia” to finance budget expenditures is still not limited by law, so theoretically the government can once again turn to the regulator for help in the form of emission hryvnia, if such a need arises.
Why did the NBU start “printing” the hryvnia?
Last year, deputies amended the law on the NBU, allowing it to directly buy government bonds. In this way, the regulator can directly credit the budget, effectively “printing hryvnias” for the government’s needs.
This decision was caused by a difficult situation in state finances: due to the large-scale invasion of Russia, state expenditures increased significantly, while tax revenues, on the contrary, decreased.
The deficit that arose in the budget had to be promptly financed so that the state could continue to fulfill its obligations. At the same time, it is forbidden to use international aid from Ukraine’s partners to finance the war, which consumes the majority of state resources.
Will the printing of the hryvnia continue?
The government and the National Bank have agreed not to print money again in 2023, as this carries significant risks for the stability of the hryvnia. Also, the obligation to stop emission financing of the budget is included in the memorandum between Ukraine and the IMF.
The day before, the head of the NBU Andriy Pishnyi stated that the regulator will no longer resort to “dangerous money printing”.
Read also: A historic decision. How the new IMF program will allow Ukraine to attract more than 50 billion dollars
[ad_2]
Original Source Link
