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Ukraine's Cabinet out of money. Everything to be pinned on coronavirus again?

Author : Olexandr Honcharov

Source : 112 Ukraine

On November 20, 2020, the State Treasury of Ukraine has suspended financing of all public expenditures, except for protected ones. By the end of the third quarter of this year, our government spent 1,6 billion USD for these purposes out of the planned 4 billion USD for this year, that is, by the end of 2020, expenses for another 2 billion USD are subject to financing
15:10, 7 December 2020

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In addition to all this, the authorities scammed Ukrainian business into the blackboard. We are silent, no emotions, only impartial figures from the State Statistics Service of Ukraine: the financial result before taxation of Ukrainian enterprises in January-September 2020 amounted to 3,2 billion USD, which is 3.7 times (!) less than in the same period of 2019 when enterprises showed 12 billion USD in profit. And again, the share of unprofitable enterprises in January – September 2020 amounted to 34.8%!

Related: Coronavirus crisis: Over 10% of small and medium-sized enterprises in Ukraine on verge of bankruptcy

And now, it’s interesting to know where to get money for servicing IMF loans and repaying loans received from the placement of government bonds? Why pay pensions and salaries to public sector employees? And will the time come when national small and medium-sized businesses will be interested in developing in Ukraine? Indeed, as noted by Minister of Finance Serhiy Marchenko, a fantastically huge amount of 21 billion USD will be allocated to repay and service the state debt in 2021. Indeed, where can one find hundreds of billions of hryvnias for settlements with creditors given the country's constantly falling economy?

In fact, this is a technical default, since the Cabinet of Ministers of PM Shmygal cannot fulfill the obligations enshrined in the country's main financial document - the state budget-2020. Why are we in such a difficult situation? Is it all the fault of the covid?

Let's figure it out.

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So, implementing the 2020 state budget program, Prime Minister Shmygal had to:

  • firstly, to fulfill the main task of the government – to ensure economic growth while maintaining the growth in the value of Ukrainian assets and increasing the volume of funds in the national financial system (how to do this in the context of the coronavirus crisis – study the practice of China);
  • secondly, promptly and effectively conduct negotiations on the restructuring of the state debt of Ukraine - the poorest country in Europe;
  • third, to resolutely stop the corruption schemes and, in particular, the "twisting" of VAT in the tax area;
  • fourthly, to eliminate the corruption lawlessness at the Ukrainian customs;
  • fifth, to introduce a new investment strategy with the creation of an international investment hub in Kyiv;
  • sixth, to organize the effective work of development institutions within the "Ukrainian Development Corporation."

Well, has at least something from this list been done? No! Nothing! Then, dear gentlemen in power, name those patriots who returned money from offshores to Ukraine in this coronavirus year. We and our international lenders will immediately see how many local entrepreneurs trust the Ukrainian authorities, and who else is hesitant.

These will be concrete steps to return business confidence to the economic policy of Shmygal's Cabinet. And in parallel, at the request of the IMF, we will solve the problems of independence of courts, corruption, protection of private property rights, and so on.

We are still on the edge of a deep financial abyss. Question: is it possible to crawl away so as not to collapse and not completely destroy what was formed in 1991? Yes, you can. There are always strong and correct solutions. But the ministers and legislators urgently need to turn on their heads and realize that the population is stranded after the quarantine - there is no money, the parents were faced with a choice: either to feed hungry children to their fill and buy medicines, or pay record-high housing and utilities. So you shouldn't rely on the population's wallets.

Related: Covid-19 pandemic becomes the most global crisis in healthcare in 75 years, - UN

Yes, and the mass protest in Kyiv by the individual entrepreneurs has shown once again that when the Ukrainian elite applies the laws exclusively in their own interests, this inevitably leads to protests, social explosions, and impoverishment of the majority of the population. With this statement, nothing happened even after the change of power. But the further tightening of the belts to pay off the country's debts will generate new economic and political crises that can lead to complete collapse. And how many times it must be repeated that the period of an economic recession is the worst time for freezing wages, pensions and cutting government spending.

We need direct investment to save the Ukrainian economy, and for this, a new investment strategy has long been prepared. And this can be a mutually beneficial interest of the state and private business. Practice shows that the growth of the value, or capitalization, of companies managed by investors in the current environment, practically does not depend on market positions if Ukrainian enterprises are chosen correctly and a professional approach to their management is provided.

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Currently, private equity funds get down to business when there is the confidence to ensure a return on investment at the level of 10-15% higher than a bank deposit. And the fact that the source of capital should be national today, I think, was clearly shown to us by the events of the ending 2020. For this, firstly, Shmygal's Cabinet must introduce incentives for the development of the internal market for joint investment. Secondly, the return of funds from offshore companies to the Ukrainian economy is becoming very relevant and vital.

Well, and finally, we all need to honestly admit that if everything is kept as it is, the situation will be even worse. Indeed, behind the growth of unemployment and inflation, falling income levels, and energy security are the ineffective socio-economic policies of the state – a concrete, not at all abstract policy of "servants of the people".

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