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"Shamanizing" of Ukraine's public debt

Author : Oleksiy Kushch

Source : 112 Ukraine

When calculating the state debt of Ukraine, "those who count" let their imagination go wild. If the opposition leaders count, they usually talk that the debt, which is bigger than 100% of GDP. If the current ministers do it, they try to understate the debt
09:55, 2 April 2018

Read the original text at 112.ua.

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Public debt in Ukraine is similar to the famous Schrodinger’s cat. Austrian theoretical physicist proposed to conduct a thought experiment with the decay of the atom and poisoning the cat with hydrocyanic acid. The probability of decay is not defined, and the cat is dead and alive at the same time. If we apply this analogy to the public debt issue, the whole country plays the role of a cat, and every year one has to wonder whether a bottle of hydrocyanic acid breaks or not.

In addition to influencing the "guinea pig", the public debt has another "Schrodinger" aspect. When the state takes this money as a debt, there is no money for the society, and when it is necessary to give the debt back, we immediately hear that “every Ukrainian owes our creditors almost 50 thousand UAH (1,8 thousand USD), including the old people and the children".

Related: Groysman: Ukraine spends almost $5 billion for external debt

And when the precious tranches come into the country, the money split begins. In reality, everything reminds of the famous chapter from Zolotoy Telyonok (The Golden Calf ): " You and I get 4 thousand apiece. And Balaganov two. He hasn't earned even those two! But Kozlevich? Why give anything to Kozlevich? That's robbery! Who is this Kozlevich that we should divide with him? We don't know any Kozlevich!" Unfortunately, unlike the famous novel, home-bred Bender does not come with stolen gold on the Romanian border. Even on the Russian one. Customs rubber-stamp Kamaz. Koreiko claims the account, Panikovsky disappears into the crowd, and Kozlevich is forced to “repay”.

Sometimes everything happens more inventively. The Minister of Finance can carry out the restructuring procedure, with foreign venture funds making good money on it.

Meanwhile, as of March 1 this year, the total state debt for the first time in history exceeded 2 trillion UAH (76 billion USD).

When calculating the state debt of Ukraine, "those who count" let their imagination go wild. The main thing here is what the purpose of the calculation is. If the opposition leaders count, they usually talk about a debt, which is bigger than 100% of GDP. If the current ministers do it, they try to understate the debt. For example, in calculating the debt-to-GDP ratio, the amount of the state guarantees is often removed from the amount of debt, although sooner or later all guaranteed loans must be paid to the state. At the moment, $ 66.1 billion of direct debts account for $ 10.66 billion of government-guaranteed debt. But this is about the numerator of the formula, which shows the ratio of debt to GDP. You can "fix" the denominator. In any case, the result would not be completely correct: after all, debt is a fixed amount, and GDP is a flow indicator. What value to take? You can take the indicators of the last year, but you can also plan the current one. As a result, we get significant deviations in the calculations. Therefore, in order to understand the real value of this indicator, let us take our GDP of $ 110 billion and $ 76.76 billion of direct and guaranteed public debt. We will receive a debt-to-GDP ratio of almost 70%. And this is more or less objective.

Related: National Bank expects state debt below 70% of GDP in 2018

As you can see, everything was fine until 2008, and then the crisis occurred. The debt-to-GDP ratio has deteriorated significantly since 2014 due to the devaluation of the hryvnia, which devalued the currency equivalent of our GDP and, accordingly, increased the hryvnia equivalent of external debts.

The second (no less important) topic is, who took more debts. Each government is trying to blame the previous one for taking debts. And every time we face the classical slyness: every government takes the debts, but it has to repay the debt of their predecessorі. Now, it is something usual to recall Yulia Tymoshenko, whether it is a meeting on the gas issue or the size of the external debts.

Let us try to determine who “shamanize” the public debt, but not in terms of the prime ministers, but in political cycles. Let us take the last three cycles: 2005-2009, 2010-2013, 2014-2017.

Related: British Court of Appeal postpones decision on “Yanukovych’s debt”

When calculating the growth of debt by political cycles, it is necessary to take a net indicator of debts, that is, the difference in the value of debt at the beginning of the cycle and at its end, because you can take a lot and repay much, but you can seem to moderately lend, but return nothing the creditors. In addition, when assessing the net indicator in the period 2014-2018, it is necessary to add the amount of written-off debts in the amount of $ 3.8 billion as a result of the so-called Yaresko’s restructuring. Nobody actually repaid this money, they were "forgiven" for the obligation to pay for "economic growth" in the future: the so-called "warrants of value restoration" for the creditors.

The growth of external debt in 2005-2009 amounted to 8.3 billion dollars, in 2010-2013 it reached 10.9 billion dollars, in 2014-2018, taking into account the write-off amount for restructuring (we add to the potential increase), it amounted to 14.4 billion dollars. Thus, the honorable "gold medal" goes to the last four years of borrowing from external creditors.

Related: Ukraine won’t be able to fulfill debt obligations without IMF, - Mikloš

As for domestic debts, here the undisputed leader is the current political cycle. The net position of the debt is 18 billion USD. In fact, we have a colossal inflationary “shelter”, printed in "the Ministry of Finance - NBU - state banks" system. It has almost completely crushed the exchange rate and price stability in the domestic market, as a result of which the banking system was almost completely destroyed, and the internal capital market was swamped with debris toxic assets. We have the biggest financial scam in the history of independence. Although, here there is a place for manipulation. Officials are very fond of showing on the slides domestic debt in terms of dollars. In this scenario, the currency equivalent of domestic hryvnia debts even decreased. But do not forget that over the past four years, the exchange rate of the national currency has depreciated more than three-fold. As for state guarantees, here the absolute champion is the political cycle of 2010-2013: 4,4 billion USD of state guarantees. The preparation for Euro-2012 is also important here, many domestic FIGs have benefited from it.

So despite we want to absolve ourselves of the responsibility for the increased debts, it does not work. Every man will be rewarded for his deeds. All the moves are recorded.

Related: Groysman: external debt of Ukraine is 83% of GDP

This column does not necessarily reflect the opinion of the editorial board or 112.International and its owners.

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