What can ordinary citizens, the business community, and the Ukrainian economy expect in the near future? First of all, let us recall the words of head of the Accounts Chamber, Valeriy Patzkan: 'In 2019, more than 40 percent of the state budget revenues will have to be paid, which reduces the budget's possibilities for carrying out social and economic expenses'. And, apparently, the new inflationary wave began before the increase in gas prices. In turn, in its latest review of the global economy, the IMF lowered the estimates of Ukraine’s GDP growth in 2019 from 3.3 percent to 2.7.
Yes, energy prices affect nearly all the economic sectors, following the rise in gas and gasoline prices, all types of goods and services will immediately become more expensive as well.
Ukraine is going to face a financial crisis and further deterioration of the economic situation in the country with a permanent increase in public debt. We are already getting out the window – last week, 10-year Eurobonds were placed at 9.75% per annum! The volume of placement of the 5-year tranche of Eurobonds is $ 750 million, 10-year Eurobonds are $ 1.25 billion, respectively, Ukraine has placed securities totaling $ 2 billion. The yield of the 5-year tranche with repayment in February 2024 was 9% per annum, the 10-year tranche amounted to 9.75%!
At the same time, representatives of the Cabinet of Ministers more and more often assure us that the total national debt of Ukraine is declining. However, in reality, every week of this autumn, the Ministry of Finance enters the borrowing market placing hryvnia and foreign currency-denominated government bonds (T-bills). Last week, financial authorities sold Eurobonds for $ 2 billion, and as early as October 30, the Ministry of Finance again began posting hryvnia and euro-denominated government bonds.
Senior comrades from Naftogaz, national oil and gas company of Ukraine, decided not to trail behind; they managed to withdraw their multi-million premiums from Ukraine, on October 24, they got from the Cabinet of Ministers' decisions on obtaining Eurobonds in the amount of up to $ 1 billion. Head of Ukraine’s National Bank (NBU) Yakiv Smoliy is quietly waiting for the next IMF tranche of a loan of $ 3.9 billion for a period of 15 months.
And in conclusion – that is just icing on the cake, - the legacy of Natalia Jaresko, American-born Ukraine's Minister of Finance from December 2014 until April 2016. Under Jaresko's leadership, Ministry of Finance issued new bonds for the period from 2020 to 2040 without a nominal value, but tied them to the growth of Ukraine’s GDP in exchange for the consent of international lenders to write off part of the state debt - $ 3.8 billion. Under the terms of the issuance of these securities, we will not make any payments until 2020, but then from 2020, if the annual growth of the economy is above 3 percent (but not more than 4%), the creditors will receive 15% of the nominal amount of GDP growth.
If the Ukrainian economy grows faster than by 4% per year, the amount of the payment will increase and then another 15% of the amount exceeding the growth of 4% will add to the 15% of the payment. Thus, financial analysts have calculated that, for example, with a growth of 7% of GDP during this period, we will have to pay back $ 40 billion!
It looks like the government does not expect any protests and indignations. Today, the power elites are involved in the interclan struggle for the financial flows. What will the Cabinet do next? There's no doubt that it will beg for another tranche from the IMF.
And then the question is, why do we borrow so much money if no economic reforms are carried out in the country? Also, until now, the development of small and medium-sized businesses is not promoted, as well as a normal domestic market for joint investment and legislative support for the hedging business is not formed yet. Yes, we need to obtain long and cheap money for some priority investment projects. But Groysman’s Cabinet of Ministers has not announced these priorities, nor did it create the International Investment HUB in Kyiv. There's no doubt that they would quickly spend these very expensive borrowed money, continuing to lower the country’s creditworthiness.
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