The International Monetary Fund (IMF) is aware that Ukraine is experiencing enormous difficulties with servicing the public debt. Of course, such problems are not unique. Even countries with developed economies such as the US, Japan, Italy, Portugal, Spain, and many others have great debts. However, we have too many other difficult problems, which the IMF representatives constantly point out.
But the worst thing is that we do not have long national money, which is generated by only three institutions: non-state pension funds, insurance companies, and collective investment institutions. Therefore, as soon as foreign capital escapes from the Ukrainian markets, we immediately collapse, and investment projects are crashed to the nines.
August 13, the international rating agency Fitch Ratings noted the high dependence of the creditworthiness of Ukraine on the support of the International Monetary Fund. Dear gentlemen, when in the history of Europe there were such cases of the dependence of the state exclusively on one, albeit a very large creditor? Perhaps this is not related to this blunt analysis, but is rather associated with very weak liquidity flows and sentiments of the foreign investors?
Yes, I admit that the arrival of the IMF mission at the beginning of September is more important for the government of Ukraine than even the possible visit of the American president. Therefore, we were increasingly being assured that life was improving. Thus, the Ministry of Finance has announced that it plans to discuss with the IMF mission the continuation of cooperation after the end of the expanded financing program in March 2019. In turn, the National Bank has claimed that the arrival of the IMF mission to Ukraine is "a step towards reducing uncertainty and improving all the expectations."
If I were representing Ministry of Finance or the NBU, I would try to remember what arguments were used by the IMF representatives to bring the Ukrainian economy and its government into such a grave crisis. What should ordinary Ukrainians do in this situation? Everything they can do is just stay quiet and watch how the US dollar presses the hryvnia.
However, in such tensed situations, PM Groysman repeats all the same: everything will be all right soon, and our life would become better. But this sounds very uneven because there will be an even more powerful wave of the crisis, and the hryvnia rate would increase to 30 hryvnias per one US dollar. IMF knows the new price for gas for the population of Ukraine. As it became known several months ago, NJSC "Naftogaz of Ukraine" has prepared a proposal to increase the tariff for the population by 65% - allegedly at IMF request.
I think Groysman’s Cabinet understands that people cannot afford current tariffs. How would they solve this problem? I do not doubt, they would print more hryvnias.
And yet, what can we expect from the IMF mission in early September? In the past, I have repeatedly participated in such negotiations. I think, this time, from the point of view of macroeconomics, IMF representatives will insist that our authorities adhere to the concept of long-term cycles and take up solving problems in a complex and systematic way. That is good!
Our international creditors also realize that the economy of Ukraine will have to undertake much more reforms than, for example, the EU countries. IMF representatives themselves require our authorities to restrain budget expenditures.
It is very difficult to guess what the Ukrainian authorities will eventually achieve. Moreover, the preservation of gas prices for Ukrainians was extended in July, plus discussions on the tariff formula continue, but they will be complicated by the political factors, given the approaching heating season and the forthcoming 2019 elections.
In general, it seems that the international creditors will bring our ministers and people's deputies to the conclusion that the role of the state as a regulator, rather than a participant in market relations, should not weaken, but, on the contrary, should become strengthened. And the Western partners would be fairly consistent in it. But the main thing for them is to clarify whether long-term growth and servicing of public debt are possible in Ukraine.
I would give a positive answer. But only in terms of the effective implementation of structural changes in the real sector of the economy, including the development of the business environment and the strengthening of a vulnerable banking system. What else should the Ukrainian authorities specifically do? First of all, create new rules of the game. It is time to change the rules, not the performers. The main thing is that the rules should be understandable, permanent and, what is very important, they should be legislated in a proper way.
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