What did Ukraine get from cooperation with IMF?

Author : Oleksandr Okhrimenko

Source :

Why is it impossible to use the recommendations and money of the IMF correctly? Maybe because not all the IMF recommendations turned out to be reasonable?
23:20, 5 April 2017

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When in May 2014 the IMF issued a loan to Ukraine, it developed a forecast regarding the Ukrainian economy until 2019. Thus, it pointed out what Ukraine's economy will seek and how the IMF loans will help to reach these goals. Now we can see in details which of the IMF's forecasts turned out to be correct, and which are still the expectations.

The IMF predicted that in 2016 the nominal GDP of Ukraine will be about 1.9 trillion UAH. Ukraine exceeded this figure, and in 2016, Ukraine's GDP was 2.4 trillion UAH. But this is nominal GDP, and as for real GDP, the IMF predicted that it will fall by 5% in 2014, but then it will grow, and by the end of 2016 the growth will be 4%. Really in 2014, GDP fell by 7%, and in 2015 by almost 10%, so that GDP growth of 2.3% by the end of 2016 is, rather, not growth, but the effect of accounting of real GDP.

The IMF predicted that at the end of 2016, the dollar/hryvnia rate will not be higher than 13.4 UAH. What a naivety. Although, there were very few people, who expected that the NBU will manage to collapse the hryvnia 3 times. But it's easy to collapse it, especially when the IMF constantly calls to devalue it and promises an economic miracle as a result of the devaluation.

According to IMF forecasts, in 2016, they promised an increase in exports and imports, and Ukraine's gold and currency reserves should have been about UAH 31 billion, not UAH 15.4 billion, as it turned out in practice.

So, the main goal of IMF loans, in any case, as politicians and IMF representatives say, is that loans should stimulate the flow of investment to Ukraine. Therefore, the allocation of IMF loans is very often accompanied by talks that after it the IMF and other international financial organizations, and most importantly, foreign investors, will rush to invest money in Ukraine. This is the main goal of cooperation between Ukraine and the IMF. The government of Ukraine follows the instructions of the IMF, and, therefore, must reform the Ukrainian economy in such a way that the investment attractiveness of our country will grow, and, therefore, the influx of investments, both domestic and foreign, will increase. Exactly these investments should make an economic miracle in Ukraine. But in reality the situation became completely different of all that IMF planned and promised.

Related: IMF starts to transfer tranche to Ukraine

In 2014, the IMF promised to provide loans to Ukraine in the amount of $ 17 billion during 2014-2016, but in 2015 the plans changed, and the IMF promised to provide $ 15 billion, but did not fulfill the promise. With the exception of repaid loans, the IMF provided Ukraine with just $ 5.6 billion, and another $ 1 billion it provides in 2017, which will go to pay off the old IMF loan for $ 1 billion.

Foreign international organizations promised to provide Ukraine in 2014-2016 with about $ 15 billion in cash and $ 3 billion in US state guarantees. In reality, only $ 5.3 billion in loans and $ 2 billion in government guarantees were provided.

As for private foreign investors, the IMF predicted, and our authorities expected foreign investors to invest in Ukraine at least $ 12 billion over the period 2014-2016. In total, Ukraine received about 6.5 billion dollars for this period. At the same time, Ukraine had to give non-residents about 22 billion dollars.

Why is it impossible to use the recommendations and money of the IMF correctly? Maybe because not all the recommendations turned out to be reasonable? Very often the IMF experts give knowingly erroneous advice. They believe that the model of the Ukrainian economy is no different from the US economic model, and therefore neither the cash of the population nor the "shadow economy" are taken into account in their calculations. It is assumed that these factors do not significantly affect the economy of Ukraine.

Although, the opposite is true. The devaluation of the national currency in the US economy has a positive effect on US exports, because there is not so much currency of other countries in United States. Americans do not buy euro in cash, as well as Europeans do not buy dollars in cash. According to the NBU, as of January 1, 2017, the population of Ukraine had about 83 billion of foreign currency.

Therefore, any devaluation of the national currency, instead of stimulating exports, provokes the collapse of hryvnia. This is what IMF experts do not understand, and therefore their advice may be really good, but for the US economy, and not for the economy of our country.

Unfortunately, the economic miracle did not happen. And Ukraine has received the next tranche of the IMF. Again, we hear the new talks about the expected large investments from abroad. Again we are waiting for it.

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