I'll start with the issue of public debt. The year 2019 is the period of the greatest payments on external public debt. At the beginning of the year, the volume of payments for servicing and repaying foreign loans was estimated at $ 6.3 billion. At a recent meeting of the President of Ukraine with representatives of the IMF (the main creditor of our country), they discussed the beginning of a new program of cooperation with the Fund as one of the options.
Journalists ask - how to consider this? There is no definite answer. The continuation of cooperation with the IMF is a positive thing, but the current stand-by program provides for the allocation of two tranches - $ 1.3 billion in May (time is postponed) and $ 1.2 billion in November (if our country fulfilled the conditions of the Memorandum of Cooperation with the Fund. In particular, to receive the first of the two tranches, only one of the four conditions was met - the monetization of subsidies).
Add to this 0.5 billion euros of macro-financial assistance from the EU and $ 1 billion of World Bank loans (in the form of two tranches of 0.5 billion each), which Ukraine would receive after providing the relevant tranches of the IMF loan. 4.1 billion dollars in total. In the new program, the timing of loans is difficult to predict.
Working on a new program can take a couple of months. We take into account the fact that representatives of the Fund will not arrive until the formation of a new government on the basis of parliamentary elections. It turns out that there will be no representatives of the IMF in Ukraine before September, so signing documents should be expected no earlier than the end of September - the beginning of October. And the allocation of loans does not immediately occur after the signing of the program.
During the three summer months, Ukraine will need to pay external debts in the amount of $ 1.8 billion, in September - 1.7 billion. Plus, the expected selling of hryvnia government bonds by the non-residents, approximately for the equivalent of 1 billion dollars, with the subsequent conversion of the money received in the USD.
Will we manage this? Yes, we will. But due to the borrowing, in some cases – using the international reserves of the National Bank, which by the end of May will be reduced due to payment of the state debt of 1.7 billion dollars. Therefore, if the possibility of continuing cooperation with the IMF within the framework of the existing program remains, it is advisable to take advantage of this.
It should also be borne in mind that according to the law of Ukraine "On the National Bank of Ukraine", the gold and foreign exchange reserve is used exclusively to ensure the internal and external stability of the currency of Ukraine. It is not allowed to use a gold and currency reserve for the provision of loans and guarantees and other obligations to residents and non-residents of Ukraine.
Therefore, the government should keep in mind these positions. I think that the independence of the NBU allows us to pursue a fairly balanced policy of using gold and foreign exchange reserves.
So, let’s talk about the risks in the foreign exchange market. A possible noticeable decrease in international reserves is capable of giving a psychological signal to participants of the foreign exchange market. We must not forget that before the start of the heating season, that is, before October, Ukraine needs to pump 15-16 billion cubic meters of gas into underground gas storages.
At current market prices, this will require about $ 2.5 billion, which will have to be found in the next four months (overall, $ 3 billion is needed, but Naftogaz has a credit line of 0.5 billion).
What could be the dynamics of GDP? I, rather, have a low-key forecast than an optimistic one, ready to share the position of analysts of the National Bank, who believe that a slowdown in economic growth rates is not excluded this year (2.5-2.7%).
Ukraine is a country with a small open economy, focused on the export of agricultural products, raw materials and semi-finished products with low added value. That is, it seriously depends on world prices for raw materials and the situation in the countries - our main trading partners.
According to the forecasts of the UN Food Organization, in 2019 world grain production may increase by 2.7% after a decrease observed in 2018. Consequently, there are no serious prerequisites for the growth of grain prices - the main shape of the Ukrainian agro exports.
On the other hand, there will be a reason for cautious optimism - according to forecasts, global consumption of cereals in the season 2019-2020 will increase by 1.5%, but the increase will most affect feed grain, the consumption level of which will increase by 1, 7% compared with the season 2018-2019.
And Ukraine is a major player in the world market of feed grain. Farmers make forecasts about the next record harvest in the 2019-2020 marketing year - 63-65 million tons, of which 43-46 million tons will be exported.
Probably, due to the large volume of sales in foreign markets, the export revenue of Ukrainian agricultural producers and agro-traders may increase. This, together with transfers from labor migrants, will contribute to balancing the situation on the foreign exchange market.
The second most important part of Ukrainian exports is steel products. Forecasts for the profits from finished products and for iron ore are different: if world steel prices are unlikely to decrease in 2019 (although there are no forecasts for their increase) and will fluctuate between 440-450 dollars per ton, then the cost of iron ore may fall quite strongly - from the current $ 80 per ton to $ 65, which does not promise good in terms of both GDP and the trade balance, as well as the foreign exchange market.
There is no reason for optimism in forecasts for the development of the main trading partners of Ukraine. Most of them are expected to slow down in 2019 compared to 2018: in Turkey - by 1 percentage point, in the euro area - by 0.7 percentage point, in Poland and the Czech Republic - by 0.5 percentage point, in Belarus - by 0.7 percentage points, in Russia - 0.2 percentage points.
There is another serious risk for the economy, located at the intersection of foreign policy and energy issues. The fact is that on December 31 the contract on the transit of Russian gas through the territory of Ukraine expires. Russia does not approach this issue according to its plans - it is obvious that the Nord Stream 2 will not have been built up to that moment, and one of the three planned branches of the Turkish Stream for export to Europe can be involved at best.
Therefore, gas transit through the territory of Ukraine will have to be carried out not in the amount of 15 billion cubic meter, as suggested by the leaders of Gazprom, but in the amount of 70-80 billion cubic meters. It is obvious that the Russian side will build up the negotiating positions regarding the volume of transit and the rate for transit in the usual aggressive style.
In addition to a possible military aggravation, we should prepare for a possible new embargo and restrictions on trade. Given that the Russian Federation is still the largest economic partner of Ukraine (if we consider the EU countries separately), this is a serious potential risk. I think that the composition of the National Security and Defense Council approved on the last day of spring should consider possible options for countering possible trade restrictions from the Russian Federation.
As we can see, the sensitivity of the balance of payments to the conjuncture of international commodity markets and the state of the economies of the main trading partners causes for Ukraine both the risks of slowing down the dynamics of GDP and currency risks. Unfortunately, we still retain the export-raw material model of the economy, which in itself is an automatic constraint for economic dynamics - focusing on the export of raw materials, semi-finished products and products with low added value leads to a reduction in returns on the scale of production.
The critical dependence of the Ukrainian economy on the conjuncture of world commodity markets leads to periodic crises in the balance of payments, which is fraught with threats to the foreign exchange market. It hurts to look at the Ukrainian export structure, even against the backdrop of our neighbors - the former socialist countries. In Poland, the export structure is dominated by machinery and equipment, textiles and building materials, in the Czech Republic - products of the automotive industry and mechanical engineering, in Slovakia - cars, spare parts for them and household appliances. And here we have wheat and corn, iron ore and steel slabs ...
What to do? There were no countries in the world that flourished economically for a long time, but they did not have a developed industrial sector. Successful states often did not shun protectionist policies and moved on to open international competition only after national producers were technically, technologically, and financially prepared for a successful confrontation with competitors.
At the same time, the standard of living of the population and the quality of the environment increased. So, choosing the right economic policy should be a top priority for our state. That is why a new Development Strategy for Ukraine until 2030 should appear by the beginning of autumn.
And this should be a Balanced Development Strategy, which takes into account the possibilities of both accelerating economic growth and the growth of the people's well-being and the possibility of reproducing environmental quality. The first steps of this Strategy should be announced in the message of the President of Ukraine to the newly elected Verkhovna Rada.
The National Academy of Sciences of Ukraine and the National Institute for Strategic Studies should take the initiative in this regard.