The second Monday in October, 2022, was a dark day – literally – for Ukraine. The date marked the launch of Russia’s cruise-missile and suicide-drone attacks on Ukraine’s power grid. The weeks of relentless destruction that would follow left millions of homes and businesses with no electricity or heat.
The date also marked Andriy Pyshnyy’s start as governor of the m(NBU), after a career in commercial banking and politics. The blackouts that coincided with his arrival threatened to shut down the country’s banking system. So he swung into action. In came the “Power Banking” project.
The effort saw the country’s largest banks and their branches shunted into one network, where they would have connectivity, backup electricity and access to cash. The NBU, desperate to keep the banking system alive, insisted that the branches buy diesel or gasoline generators and use Elon Musk’s Starlink satellite-internet service. The NBU was quick to fix any oversights. When it realized that most branch managers were women, many of whom had trouble lifting heavy cans of fuel to fill the generator tanks, it ordered smaller cans.
“The Power Banking idea was born in the bomb shelter on the first day of the attacks on the power infrastructure, and the idea was that at least one-third of the branches should work as a unified network so that, during a blackout, you became a customer of the entire network,” Mr. Pyshnyy said in an interview with The Globe and Mail. “As a result, the banking system did not stop for a single second during the war.”
At the same time, the NBU ensured that ATMs were installed in emergency shelters set up by the government. During blackouts, Ukrainians could use the shelters to warm up, charge their phones, receive a hot meal – and get cash. The NBU itself set up a shelter inside its main office for any power-deprived employees who wanted to spend the night; the shelter included a children’s playroom. “My son, who is aged nine, spent all day with me here while I worked,” said Yuliia Yevtushenko, the director of NBU’s communications department.
After some 2,400 bank branches were knitted together during terrible blackout months, the NBU and its new boss faced more critical tasks: how to crush runaway inflation, prevent another round of inflation-stoking money printing, restore the internal debt markets and work with the Finance Ministry to turn the International Monetary Fund and other financial donors into long-term partners as the war dragged on.
And all this had to be done while the Ukrainian economy was in the tank. GDP fell by almost a third in the first year of the war, unemployment exceeded 20 per cent, one-fifth of the country’s territory was under Russian control and one-quarter of the population had either fled the country or had been displaced within it. “The level of uncertainty was significant,” Mr. Pyshnyy said.
The NBU building has so far been undamaged by the war, now in its 21st month. The elegant structure lies in the national government quarter in central Kyiv, not far from Maidan Square, the epicentre of the Orange Revolution in 2004 and the bloody Euromaidan protests a decade later. The area is protected by anti-missile and anti-aircraft batteries, whose precise locations are secret.
The building, with its pink and grey façade and ornate decorations, is a work of art in itself. It was built in the Russian Revival style in 1905 as the Kyiv branch of the State Bank of the Russian Empire. During the Soviet era, a ventilation system in the rose garden courtyard would carry the scent of the flowers throughout the building. Even the enormous lavatories are charming, with their marble construction and shoe-polishing machines.
Mr. Pyshnyy is an eccentric presence amid the splendour. Unshaven and almost bald, he looks like a fashionable Harley-Davidson rider. On a sunny day in early November, he wore a black turtleneck, grey jacket and blue jeans. His right forearm was covered in tattoos. Both of his wrists were weighed down with heavy bracelets.
The governor is deaf. He began to lose his hearing in 2008, when he was in his mid-30s. “I cannot hear music but I sometimes listen to it in my dreams,” he said.
(For his interview with The Globe, he sat next to an interpreter who typed the questions into a tablet, translating them into Ukrainian, before another interpreter translated his answers into English.)
He is 49 and has two adult daughters. His wife, Ludmila, leads a charity that assists hearing-impaired children and is a partner in a contemporary art gallery in Kyiv. On Feb. 24, 2022, when the Russian invasion began, he was at home with his family.
“For some reason, I woke up before the first missile attack,” he said. “I woke my wife and told her, ‘Get up, the war has started.’”
At the time, he was between jobs. A law school graduate, he spent 16 years in the finance industry before Ukrainian President Volodymyr Zelensky nominated him for the top job at the central bank.
The early part of his career was spent at Oschadbank, also known as the State Savings Bank of Ukraine, after which he had stints at other state-owned banks. He was elected to parliament in 2012 and was a lawmaker for two years. He returned to Oschadbank in 2014 and was chairman of its management board until 2020, overseeing its transformation from a Soviet financial institution into one of Ukraine’s biggest commercial lenders. After the Russian invasion, he became part of a group advising Mr. Zelensky on imposing sanctions against Russia.
Since Mr. Pyshnyy’s job began eight months after the start of the Russian invasion, much of the emergency work was already in place, including a rate hike and the implementation of capital controls such as a fixed exchange rate to prevent a sell-off of the national currency (the NBU was nonetheless forced to devalue the hryvnia by 25 per cent in July, 2022). His job was to return a sense of normalcy to the capital markets and the financial system while keeping the banks operating.
One of the first priorities was to end monetary financing – printing money, in effect, to help fund the government deficit. Monetary financing, which sees a central bank purchase bonds from the government, is generally considered inflationary and is banned in some countries, as it was in Ukraine (the Ukrainian parliament suspended the restriction). Last year the government raised about US$12-billion by printing money and another US$2.6-billion by raiding the NBU profits from 2021 and 2022. “This year, we had to make all efforts to avoid monetary financing,” Mr. Pyshnyy said.
To do so, he and Sergii Marchenko, Ukraine’s Finance Minister, went knocking on doors all over the world, begging for money to help plug a budget deficit that is expected to widen to a phenomenal 29 per cent of GDP this year as the government pays for an all-out war. In came the International Monetary Fund, the G7 countries, notably the United States, and other international donors. The G7 says US$32.7-billion was funnelled into Ukraine last year. Mr. Pyshnyy said he expects Ukraine to receive US$45-billion in loans and grants in 2023. “It is important that our partners stay with us next year,” Mr. Pyshnyy said.
But will they? Already, Kyiv worries that the easy funding era may be over, despite the fact Ukraine will need vast fortunes for a long time even if the war were to end next year, which seems unlikely. In March the IMF said Ukraine’s external financing gap would range between US$123.5-billion and US$148.7-billion between 2023 and 2027.
In mid-October, Mr. Marchenko said he saw donor fatigue setting in as the war approaches its third year and the U.S. pivots to supporting Israel in its war with Hamas in Gaza. “I see a lot of weakness among our partners. They would like to forget about the war, but the war is still ongoing, full-scale,” he told Reuters on the sidelines of the IMF and World Bank meetings in Marrakech.
Donor fatigue is Mr. Pyshnyy’s nightmare scenario too. “Marchenko and I share this fear,” he said. “Our concern is possible refusal by the donor countries to provide sufficient and timely financial aid, and failure to meet the commitments made under the financial assistance package.”
In the meantime, he can count on a string of fairly hefty victories to sustain his morale – and the government’s. Monetary financing is gone, and Ukraine is again raising money on the internal debt markets – US$13-billion so far this year. The inflation rate, which peaked late last year at 27 per cent, has come down to about 7 per cent. Interest rates have been cut twice since July, far earlier than the NBU had expected, taking them to 20 per cent from 25 per cent. Tax collection is up. And the fixed exchange rate has been replaced with a “managed flexibility” rate. Financial and monetary market forces, in other words, are making a comeback.
The bad news is that the Ukrainian counteroffensive seems to have stalled and the war shows no sign of ending. If donor fatigue truly does set in, Ukraine could face a new – and potentially deeper – funding crisis next year. “International financial support is critical for us and will be for some time,” Mr. Pyshnyy said.