Return to sustainable growth of Ukraine’s economy and risks of financial destabilization

Abstract

The article presents a systematic analysis of the risks of the Ukrainian financial system and offers suggestions that encompass a set of structural reforms aimed at expanding its role in returning the country to sustainable development. It is shown that the national economy has not managed to achieve an outstripping pace of development like most «post-planned» economies of Eastern Europe. The main reason for this has always been a lack of strong and independent governmental institutes and, consequently, structural reforms. Reforms in the real economy have been substantiated in the scope of the energy sector in view of the transition to market rules and use of anti-monopoly measures. Considering the financial system, the author justifies a higher degree of operational independence for the National Bank of Ukraine as a regulator, its broader authority to regulate non-banking institutions, transition to commercial and state banks using standardized principles of deposit insurance, and mandatory calculation of borrower’s credit rating when approving loans. In view of the sizable state budget deficit, improvements to the pension system are examined. It is argued that its improvement must focus mostly on eliminating privileges, revision of the retirement age for some population categories, creation of non-state pension funds and their introduction to the financial markets.