NBU's financing of Ukraine's state budget could hinder accession to EU - bank governor

MOSCOW. July 6 (Interfax) - The massive financing of Ukraine's state budget by the National Bank of Ukraine (NBU) could considerably drag out or even prevent Ukraine's accession to the European Union, NBU Governor Kyrylo Shevchenko said.

"Economic and monetary policy criteria contain clear rules that, among other things, require guarantees of independence of central banks in the member states and ban central banks from directly financing the public sector. Failure to comply with these requirements could hinder European integration or drag out the process of Ukraine's accession to the EU for decades," Ukrainian media quoted Shevchenko as saying in his column for the Ekonomichna Pravda (Economic Truth) online media outlet.

"Emission" hryvnia reaches the forex market and puts pressure on the exchange rate and foreign reserves, Shevchenko said. In particular, about 70% of "emission" injections were bought out on the forex market using foreign reserves, which reduces the dollarization of the economy and withdraws savings from the country's financial system, he said.

An alternative to financing the state budget through issuing more money is the redistribution of resources to focus on priorities through cutting noncritical budget expenditures and reducing incomes, Shevchenko said.