Investors are worried that countries' efforts to combat the spread of the virus can hurt the global economy. And in the worst of the scenarios lead to a recession. In the end, more recently, at the end of 2019, the thesis became common that in order for the current world economy to fall into recession, something extraordinary needs to be done: war, epidemic, natural disaster.
Investors are worried about restrictive measures, first in China and then in Europe. They are afraid that a critical mass of economic restrictions may cause a domino effect and still trigger a recession mechanism.
Moreover, the global economy has been growing for a very long time. For too long. And everyone is already tired of waiting for the crisis. And who knows, maybe we will see an example of a self-fulfilling forecast. Still, economics is about psychology.
It’s too early to say what has “begun” and to remember a 2008 instruction manual. So far, this might be just a strong correction in heavily overheated markets. But the fact is that the markets were scared. And this limits Ukraine’s ability to access external financing. And this is in 2020, the year of peak payments on external debt.
Amid fear and loss of risk appetite by investors, several auctions for the placement of government bonds have been very modest. Without foreigners. They are now not up to increasing their presence in Ukraine. The domestic bonds were the main source of raising funds for Ukraine in 2019.
So far this tap has been turned off. For how long? It depends on whether we are observing a correction or a real transition to a crisis. There is no answer to this question. And it does not happen. But the fact is that domestic bonds are not an assistant for the Ukrainian Ministry of Finance. The same can be said about another market instrument - Eurobonds.
As a result, the dizziness from successes among the Ukrainian elites that now we don’t need the IMF faced with a brutal reality when it is necessary to carry out the reform program in order to avoid economic collapse. Because only our friends-creditors remain - the IMF, the World Bank, and the EU for refinancing debt in such conditions.
And other official organizations that are called upon to support countries such as Ukraine. And financing from all our partners is tied to the IMF program. There will be an IMF program - there will be money from the EU and the World Bank. So Ukraine will be left alone with the prospect of default.
Thus, it is critical for a country to receive the IMF program as soon as possible. Large payments fall in March and May, and if resources for March are still sufficient, then in May it is necessary to attract external financing. Thus, the coronavirus leaves no choice for the Ukrainian authorities. They are obliged to agree with the IMF as soon as possible.
Coronavirus is bad for the health of people. But, as it turned out, it is good for the health of Ukrainian reforms. Because it leaves no choice for the authorities. They now have no greedy investors who, against the backdrop of cheap money, are ready to turn a blind eye to the pranks of the authorities and continue to buy.
Maybe, the hysteria in the markets will pass and we will not see a transition to a protracted fall and recession. But current market events should remind the Ukrainian authorities that important cooperation with the IMF is and that good weather cannot last forever.
So, we need to value the IMF program. This means that we must stop bustling and try to squeeze, while remaining friends with both the IMF and the Ukrainian oligarchs. The virus does not allow serving two masters at the same time.