Ukraine’s central bank pushed back against its auditor over a report that said authorities should have created reserves for government bonds bought to prevent potential risks to the monetary system.
The National Bank of Ukraine should have booked provisions for more than $20 billion worth of hryvnia-denominated government bonds that it had accumulated in its portfolio last year, Ernst & Young LLP, which audited the central bank’s 2022 consolidated financial statement, said in a disclaimer to its report.
The central bank significantly stepped up its purchases of government debt shortly after Russia’s full-scale invasion in February of last year to provide a lifeline for the government as the war damaged its credit prospects.
Julia Kochetova/Bloomberg
The financing fueled tension between the Finance Ministry and the central bank, which urged the government to raise more funds via international markets. It also drew criticism from the International Monetary Fund, which demanded that the practice end before concluding a financing agreement with Kyiv in March.
“The reserve for expected credit losses on Ukraine’s securities should have been recognized,” Ernst & Young said in a note appended to the audit published on the NBU’s website this week. The company declined to provide further comment when reached by email and telephone.
In response, the central bank said the debt was low-risk and stable due to the government’s discipline in payments and robust aid being received from the nation’s allies.
The monetary authority has “valid reason” to expect returns from its government bond holdings on time, with almost $3.9 billion due this year, the NBU said in an emailed comment to Bloomberg News late Wednesday.
The Ernst & Young disclaimer shouldn’t affect transactions with various counterparties, the bank said. It has also never booked provisions for state debt since it began drawing up statements under international financial reporting standards in 2016, the NBU added.
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