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Ukraine elections shouldn't derail reform efforts, central bank deputy says

Key Points
  • Ukraine is waking up to the prospect of a potentially radical change of political leadership in the coming weeks.
  • Comedian and actor Volodymyr Zelensky won a third of the votes in the first round of presidential elections Sunday.
  • The economy is in recovery.
Comedian and leading Ukrainian presidential candidate Volodymyr Zelenskiy (C) plays awaits voting results at his election night gathering on March 31, 2019 in Kiev, Ukraine.
Brendan Hoffman | Getty Images News | Getty Images

Ukraine is waking up to the prospect of a potentially radical change of political leadership in the coming weeks after comedian and actor Volodymyr Zelensky won a third of the votes in the first round of presidential elections.

Zelensky, whose only experience of politics is from playing the role of president in a hit TV show, will now face incumbent Petro Poroshenko in a runoff vote on April 21.

How a change of leadership could affect the economy's slow recovery — and reform efforts that are a condition of financial aid from the International Monetary Fund (IMF) — are likely to be at the forefront of Ukraine's benefactors' minds.

"Of course, what the country needs is to accelerate reforms and to accelerate growth to catch up with other countries," Dmytro Sologub, deputy governor of the National Bank of Ukraine, told CNBC Tuesday.

"I would say the stability is there, but the tale of convergence would be only there if we see a strong push for reform and so on."

"What is important for us is an independent central bank, and the ability of the politicians and policymakers to perform these reforms," he told CNBC's Steve Sedgwick in Kiev.

VIDEO4:1604:16
Ukraine needs to accelerate reforms, central bank deputy governor says

Whoever wins the second round of voting, the economy will need to be at the forefront of governmental policy. Ukraine's economy is seen growing 2.7 percent in 2019, according to an IMF forecast, although its economy contracted a cumulative 16 percent in the two years after 2014 when Russia's annexation of Crimea prompted a financial crisis and capital flight.

The IMF approved a four-year $17.5 billion loan for Ukraine in 2015 and subsequently gave the country a further $3.9 billion aid package in December. Implementing key reforms, and particularly anti-corruption measures, are a pre-requisite for aid tranches to be released, however.

In December, the IMF said that while the Ukrainian authorities "have successfully restored macro-economic stability and growth, with support from the international community" more effort was needed on structural reforms.

It noted in a statement that "it will be important to resist pressures to increase spending or lower taxes, while renewing efforts to improve public financial management and revenue administration." "Further progress on anti-corruption reforms and privatization will help attract investment and improve the business climate more broadly," it added.

VIDEO5:0605:06
Ukraine politician: Zelensky not the best option — but better than Poroshenko

The Fund noted that maintaining central bank independence would be crucial to reduce inflation and rebuild international reserves within a flexible exchange rate regime. Interest rates currently stand at 18 percent as the rate of inflation is seen at 9.2 percent this year. Unemployment is expected to stand at 8.6 percent this year. Sologub was confident that the economy is improving.

"We in the central bank are confident that whoever is the president and whatever the outcome of the political cycles this year, the central bank would be able to fulfil its mandate of price and financial stability."

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