KYIV, Nov 2 – Ukraine’s second most powerful government official in charge of the country’s economic policy has resigned on Tuesday amid signs the economy has faltered after falling into recession this year.

The resignation of First Deputy Prime Minister Oleksiy Liubchenko, who was also the economy minister, must be approved by Parliament, which has scheduled an emergency session on Wednesday.

Liubchenko was seen by some as a rising star in Ukrainian politics, with some even predicting he could eventually replace Prime Minister Denys Shmyhal. His policy ideas included borrowing and printing money to invest in state-dominated sectors of economy to deliver fast economic expansion.

This policy backfired badly.

Serhiy Verlanov, former head of the State Tax Service, in a scathing article published by the U.S. financial news and analysis service Seeking Alpha in early August, warned investors the policy would inevitably slow down economic growth.

Verlanov argued the government’s rampant borrowing was boosting inflation and forcing the National Bank of Ukraine to raise interest rates, which in turn, was making loans for businesses more expensive and discouraging economic growth.

Days after the article was published, Liubchenko publicly defended the policy, but argued the NBU’s rate hikes were “excessive,” suggesting the government must start discussions with the central bank about lower interest rates to stimulate growth.

Lowering interest rates during the high inflationary pressure could have a cataclysmic effect on the economy by potentially letting inflation out of control and causing a serious economic downturn.

Economic data released late August showed that Ukraine’s economy had fallen into recession this year, effectively ending anemic recovery post COVID-19 lockdown and negatively surprising both, investors and the government.

At its most recent meeting on Oct. 21, the NBU kept interest rates unchanged at 8.5%, ending a string of rate hikes this year, despite annual inflation rising to 11% in September, a move that essentially reflects Liubchenko’s policy ideas.

However, the NBU lowered its forecast of Ukraine’s economic growth to 3.1% on year in 2021, down from 3.8%, suggesting that the central bank sees major economic headwinds in the months ahead.

Ukraine’s public debt increased almost 10% in the past seven months to $92.5 billion as of June 30, up from $84.2 billion as of November 30, 2020, according to the Finance Ministry.

The debt shot up a staggering 18% over the past 25 months since President Volodymyr Zelensky had taken office, the data show. (tl/ez)