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Hryvnia bears the cost of mistakes of Ukraine's Cabinet and Parliament

Author : Olexandr Honcharov

From the first days of 2018, the unpredictability of hryvnia exchange rate is a dangerous indicator
11:29, 15 January 2018

Read the original text at 112.ua.

izvestia.kiev.ua

From the first days of 2018, the unpredictability of hryvnia exchange rate is a dangerous indicator. It means that average Ukrainians will have to keep their dollar and euro savings. To be frank, the fate of Ukrainian market could be called miserable, and in the future, we would face even more shocking upheavals. Taking into consideration alarming macroeconomic indicators and the failure to adopt the bill "On capital markets and regulated markets", Groysman’s Cabinet should start the negotiations on restructuring the state debt as soon as possible. In the first quarter of 2018, the state budget of 2018 will fall apart.

International Monetary Fund loan would not help us, while Ukraine’s regions would regularly ask Kyiv to allocated them more money. The "printing press" is fully working. And it is high time to the demand the issue of the domestic government loan bonds in order to increase the domestic hryvnia debt (for somehow to accomplish huge social obligations).

Related: Ukraine’s hryvnia may begin strengthening in late January or early February – bankers

Seemingly, Ukraine’s top officials and politicians know some secret, which is not available for the other Ukrainians. At first glance, the situation could be more simple: the Cabinet and the Parliament should develop Ukrainian economy and gradually surrender from foreign currency (in favor of the hryvnia). Nevertheless, the top bodies stubbornly do not want to admit that the economic crisis in the country was hardly provoked by a mismatch between the financial market and the real economy sector. But neither Prime Minister Groysman, nor Parliament Speaker Parubiy, have never ever said a single word about the risks connected with financial and technical innovations.

For instance, how the current legislation on the organized exchange, commodity, stock and futures markets, mortgage, should be changed in order to balance the currency, securities, and real estate sector of Ukraine's economy? What innovations and restrictions should be introduced in public markets, different from the conserving backwardness? However, it should be noted that no one forces the people to buy the dollar. But why do people buy US dollars, increasing the outflow of capital from Ukraine?

Related: Phenomenon of bitcoin: What benefit could Ukraine get from digital hryvnia?

The answer to this complicated question is very obvious: they trust America and the obligations of the US government. While they have little trust in Ukraine’s Cabinet, there is no confidence in the Verkhovna Rada, accordingly, Ukraine cannot still afford its economic recovery. Of course, Groysman's team is trying to keep everything pressured. It would doubtfully manage to do it, although, in 2018, the GDP growth forecasts is approximately 3%. As usual, just like in 2016 and 2017, the Cabinet probably would not fulfill its promises.

Though GDP is a very important economic indicator, an average person knows little about it. For example, if someone takes many credits, then his personal GDP will significantly increase, but the next day he will have to pay even more money (including interest). Therefore, it is much more important not operate with sole figures of GDP, but rather try to understand, what causes the increase, what is the structure of this indicator, what are Ukraine's debt obligations, and how this will all affect the welfare level of the average people. After all, IMF loans, not supported by the production growth, cannot provide a means for immediate spectacular and effective economic reforms, even for a short time. In the long perspective, this is just a dead end and a catastrophe.

Related: Why Ukrainian hryvnia falls: Secrets of the real exchange rate policy

Ukraine’s Cabinet should stop this smarmy populism and finally start controlling costs, otherwise no one cannot count on even the slightest economic growth. Well, the economy of Ukraine cannot develop if the salaries of ministers and top-managers of state enterprises do not correspond to the efficiency of their work, and payment of tariffs of natural monopolies goes faster than the financial results of the companies.

Experts highlight three crucial drivers of economic growth in 2018: first, increasing exports; secondly, an increase in consumer demand; third, investment activity. Why exactly these drivers? Because after the continued devaluation of hryvnia, after our costs have fallen in price, and the work of specialists and workers has become even cheaper, we need plenty of investment resources. But we do not have them. And neither the government nor the legislators are doing anything to save the situation.

Related: Economic forecast for Ukraine: Hryvnia weakening, high inflation and tarrifs

And hryvnia is forced to “pay for” all the faults of the executive and legislative authorities. It looks like our national currency would continue to depreciate. Almost certainly, in 2018 the US dollar will weaken against the world's major currencies, but the hryvnia will depreciate even faster. Purchases of foreign currency to cover the debt costs of more than $ 4 billion in 2018 will harmfully affect the hryvnia exchange rate. If the prime minister did just one simple arithmetic calculation and looked at the percentage of VAT in the revenue side of the 2018 budget, he would immediately start thinking not about the sponsorship of Western partners, but about the significant expansion of the tax base in his country .

This fact might encourage the government and the parliament to stimulate the development of Ukrainian business, reduce the number of days offs and public holidays. And Prime Minister Groysman would also force the financial and economic block of the Cabinet to form an attractive investment climate and stimulate lending to small and medium-sized businesses.

Instead of begging for food, the authorities need to increase Ukrainian businesses. Then the hryvnia would definitely strenthen.

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