Elimination of damage from barbaric approach to Ukraine's economy will take at least 10 years

Author : Olexandr Honcharov

Source : 112 Ukraine

The younger generation of politicians should change the system of government, the economic model and the current monetary policy. There are no soft options for such a shift, there are only more rigid and uncompromising ones
22:26, 9 April 2019

Open source

The younger generation of politicians should change the system of government, the economic model and the current monetary policy. There are no soft options for such a shift, there are only more rigid and uncompromising ones. It is not so difficult to carry out the reforms. The only question is how strong their political will is. Structural reforms are easy and simple, but it is necessary to show political will and, of course, abandon embezzlement, corruption schemes and the system of enrichment in power.

As analysts noted in the World Bank’s April review of the Europe and Central Asia economies, Ukraine will be able to restore economic growth to 4% in the medium term only in case of increasing the pace of reforms. Otherwise, if reforms are not conducted, growth may fall below 2%.

This report emphasizes: “The growth forecast for Ukraine’s economy largely depends on maintaining the momentum for reforms to support investment and mobilizing sufficient funding. In 2019, growth is projected at 2.7%, since investments are still limited by difficult external conditions, the uncertainty associated with the election, and, as a consequence, the high cost of external borrowing."

By the way, back in January of 2019, the World Bank predicted a slowdown in the growth of our country's economy, and, accordingly, it worsened the forecast for Ukraine’s GDP growth from 2.9% to 2.7% this year. At the same time, the growth of the Ukrainian economy in 2020 remained at the level of 3.4%, and in 2021 it was lowered to 3.7%.

In turn, analysts of the Morgan Stanley investment bank also suggested a decline in Ukraine’s GDP growth rate to 2.7% in 2019 and to 2.6% in 2020; they predicted the current account deficit in 2019 at 4% of GDP and 3.6% in 2020. They also expect that by the end of 2019, the hryvnia- dollar exchange rate will decline by 4 hryvnias - to 31 UAH / USD and up to 32.5 UAH / USD by the end of 2020.

Frankly speaking, I wondered how Prime Minister Volodymyr Groysman, with such forecasts of leading Western analysts, could contradict the fact that if working productivity is lower than the level of social expenditures, then we inevitably go to ruin.

Related: Ukraine's economy after elections: Why everything will be fine

And the IMF loans with loans from the placement of government bonds will not help us, moreover, they will worsen the well-being of our children and grandchildren. Judge for yourself, on April 2 hryvnia government bonds were placed again at UAH 6.8 billion (245 million USD) and currency papers - at 122 million USD.

And already on April 4, the Prime Minister said: "Decentralization has transferred tens of billions of hryvnias to the localities, which communities can use at their discretion and improve the quality of life of people."

And where are the government programs to stimulate the development of small and medium-sized businesses, the growth of labor productivity and technical re-equipment? Where do these borrowed billions go? Indeed, over the past 5 years, as noted by Groysman, the state support of the regions has grown at least 40 times - from 17 million USD to 20.75!

Related: Month of April: Legal, political, and economic changes in Ukraine's life

But why doesn't the producing economy grow in the regions at the proper pace?! Why have protests escalated in recent years? Is it not because more and more people find themselves below the poverty line? And the main thing is that we very quickly lose the middle class. Desperate people will inevitably protest.

I dare to predict: the current events in Kyiv are not a large-scale start yet, but the start of a real power reload process. The epicenter of the election campaign began to shift to the level of anxiety in society.

Some people have already understood this, for example, the head of Naftogaz, Andriy Kobolev, suddenly declared that after the recent decision of the Cabinet of Ministers, he is ready to lower the gas price for the population by as much as 17 kopecks (0,6 cent) And he continues to sow "optimism." However, on April 6, the Fitch Ratings confirmed the long-term default ratings of the Naftogaz Ukraine at the “B-” level.

Fitch analysts noted that this rating takes into account the weak liquidity profile of Naftogaz, generally relatively low leverage, as well as the uncertainty associated with domestic gas prices and political risk.

Fitch Ratings agency mentioned that the state still guarantees a significant part of Naftogaz’s debt (30% of gross debt as of the end of 2018), and the financial indicators of the company are controlled by the main creditor of Ukraine, the International Monetary Fund.

On April 5, our Accounts Chamber also reported that the state of implementation of the income plan indicates the shortcomings of the planning, and while we are maintaining the current economic trends, there are additional risks of non-fulfillment of the state budget revenues of 2019 in the context of slowing economic growth, as Ukraine’s real GDP in January - February has grown only by 1.6%.

Related: IMF to lower forecast of world economic growth in 2019, 2020, - Lagarde

Most likely, the completion of the elections 2019 in Ukraine will be marked by the entry of American and Chinese corporations to our country. First of all, Western and Asian partners will turn to new legislators on the adoption of the draft law "On capital markets" to ensure the free circulation of capital and goods without corruption schemes.

They will provide us with technical assistance in creating an international investment hub in Kyiv with the Universal Exchange. Foreign investors will show our market participants ways and tools to solve problems.

It is also true that there will be no easy way out of this big crisis. We should not forget the historical examples, in particular, the consequences of the Great Depression in the United States. In America, then, after a sharp drop in markets during the year, there was a rise in GDP and a rise in the stock market. After that, for as many as 10 years, the United States entered a deep recession. And Americans remember it well.

So, it is clear that we are in a very difficult economic situation. We urgently need to make a choice, here and now.

And, in my opinion, the choice is simple: either the economy will collapse after a few months (and it’s guaranteed, taking into account external factors and internal skills), or we will be able to resist.

And after the elections of 2019 from the next 2020, we would begin to crawl away from the edge of the financial abyss.

In a word, now the question of a fundamental political choice is - what should be done in order to hold on?!

Related: Trump pushes world to economic crisis: Ukraine has six months to get prepared

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