My prediction is that by the end of 2018, without the money from the International Monetary Fund (IMF), Ukraine will face a technical default. Yes, I must admit that we are not far off because it is impossible to treat the crisis with new loans only. Judge for yourself, before the end of the current year, Ukraine needs to pay back 3,26 billion USD. And in the next 2019, we already need to pay back 14,9 billion USD of state debt. I am sure the Cabinet of Ministers cannot yet do this, but there seems to be an opportunity to serve such a huge amount of loans.
Accordingly, the issues of technical default and personal budget of the Ukrainians become more and more topical. For a long time, the money factor will be the most essential since a new financial crisis might erupt soon. The well-known American billionaire and philanthropist George Soros, the head of the International Monetary Fund Christine Lagarde, Nobel laureate in economics Paul Krugman and many other leading experts warn us of this. At the same time, they note that emerging markets and their currencies will take the brunt of it. And, of course, the Ukrainian market and hryvnia will suffer greatly.
“Europe has faced am an existential danger, and it is not a turn of speech, but a harsh reality,” said George Soros. “Everything that could have gone wrong went wrong,” he added. Moreover, if we look in retrospect, then, according to the World Bank analyst, over the past 40 years the world economy has always moved in a certain cycle, in which once in 7–10 years there has been a sharp slowdown in economic growth - 1975, 1982, 1991, 2001, and 2009 were points of crisis, when, instead of 3-5% per year, growth was 0.8%, 0.3%, 1.4%, 1.9% and -1.7%. Following this pattern, it turns out that a new financial crisis might begin at the end of this year or at the beginning of 2019.
In turn, Paul Krugman predicts that the crisis will begin with emerging markets, primarily with the collapse of exchange rates. And Christine Lagarde fears a sharp exacerbation of capital outflows from developing countries and a too high level of debt burden in the global economy, which is $ 162 trillion or 220% of world GDP.
Everything suggests that the main domestic resources, not only to repay the national debt but also to keep the economy afloat, have been exhausted by the Cabinet of Ministers and the National Bank (NBU). Therefore, the default is just a matter of time. Judge for yourself: at 18% of the discount rate of the National Bank, it has become unprofitable (even for currency speculators) to take out loans for buying and selling foreign currency, but this rate is a double-edged weapon. It is damaging the real sector of the economy and the banks, destroying the lending market.
Interest rates on mortgages and consumer loans depend on such a high NBU rate, and many entrepreneurs are now worried about the future of their business. Ministry of Finance has put a fat point in this destructive business, placing hryvnia government bonds at a record interest rate of 18.5% per annum without taxation.
I think when the Cabinet and the National Bank took such a tough decision, they evaluated two things - the level of inflation and the general economic situation in Ukraine. Now both of these factors suggest that the NBU discount rate should be lowered, however, the regulator, having apparently some insider information, still does not allow the Ukrainian economy to accelerate at all. Moreover, now the IMF loan tranches are the only source of servicing our state debt.
In fact, these loans turned into a circulation of money, which, bypassing the Ukrainian economy, is returning back to international creditors. At the same time, we are forced to live by the very strict rules of the IMF, to increase public debt and lose industry. Hryvnia has devalued, and since our external debts are mainly in US dollars and euros, their value in hryvnias has grown rapidly over the past year. In a word, the game ends on a large scale, with the prospect of a country's bankruptcy. And if the hryvnia is not made an investment currency, the economy will collapse.
So, what should we do, considering that a new financial crisis is coming? It is safe to say that now only investments can save the economy of Ukraine. Therefore, firstly, we must immediately begin to implement the new Investment Strategy, which provides for the creation of the International Investment Hub and the Ukrainian Development Corporation. It should provide unification of all interested legal entities and individuals, non-residents and residents into the Association of Capital Market Participants registered in the Ministry of Justice in accordance with the requirements of section X of the draft law No. 7055 "On capital markets and regulated markets."
Secondly, when implementing the new Investment Strategy, we should provide for the rapid development of the domestic market of the joint investment with asset management companies and a number of corporate and mutual investment funds, as well as create incentives for the revitalization of non-state pension funds and insurance companies. It is these, and only these institutions that can generate long investment funds in hryvnia. Hryvnia investments can give a powerful impetus to launch the Ukrainian economy.
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