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In debt as in silks: Ukraine goes to default

В долгах как в шелках: Украина идет к дефолту

The international monetary Fund (IMF) announced that Ukraine faces default. In terms of folding business and non-obvious prospects for further lending from the international institutions to all the entities of economy of Ukraine for 2020 are required to pay a $ 17 billion foreign debt. At the same time coronavirus has opened a wide window of opportunity for improvement of the system of state and corporate Finance — another question, is there any political will to use them. Analytical portal RuBaltic.Ru decided to find out who and how should Ukraine, as well as to examine the prospects of reducing the debt burden.

As at 31 December 2019 public and publicly guaranteed debt of Ukraine amounted to 84.3 billion dollars, of which 48.9 billion — external debt, 35.4 billion internal. Thus, the debt to GDP ratio is slightly more than 60%, which in economic literature is considered to be a valid border characteristic of the national debt.

Of course, many countries of the developed capitalism, there are with debt levels of 100 percent or more. However, they, in addition to having an efficient economy that generates high added value, are able to seamlessly restructure the debt under the minimum or even zero percent.

This, in turn, can’t afford Ukraine.

From mid-2017 in the relations between Kiev and the IMF there has been a crisis due to the fact that the team of Petro Poroshenko, has already begun by the time the campaign was reluctant to perform the unpopular requirements of the Fund.

Then the government of Ukraine and the national Bank switched to the strategy of issue denominated in local currency bonds of internal state loan, the rate of return which was colossal by the standards of global financial market 17-18% per annum.

Taking into consideration the strengthening of the hryvnia, produced by the mass inflow of foreign currency non-residents buying up bonds Treasury bonds, the effective rate in the currency could be as high as 30%.

During 2017-2019 years the national debt of Ukraine together increased to 14.4 billion dollars, while the IMF during this time period, there have only been 1.4 billion More than 60% of Ukraine’s external debt is denominated in U.S. dollars.

In December 2019, the Ministry of Finance of Ukraine said that the structure of government debt by 22% (or about $ 18 billion in absolute values) consists of the official borrowing — that is, debts to international institutions in the face of the IMF, EBRD, world Bank and other organizations. About 12% of debt (about $ 10 billion) state guarantees granted to state companies and agencies (to implement infrastructure and industrial projects to ensure critical import, and so on).

Most of the remaining debt — a debt under bonds of internal and external government loan.

Including in this category includes the so-called “Yanukovych’s debt” — a loan of 3 billion dollars, issued by Moscow government of Yanukovych-Azarov in December 2013 in the midst of the Euromaidan. Regarding this debt which year are continuing proceedings in the courts of British jurisdiction, but, most likely, British justice will refer to the fact that Ukraine “has become a victim of military and economic aggression,” and therefore should not return the money.

It is noteworthy that Ukraine is in second place in the world after Greece in terms of debt to the IMF — Kiev must Fund a little more than $ 10 billion.

As of today the government of Ukraine is negotiating the conclusion of a new cooperation program with a volume of 5.5 billion dollars. At the end of last year, the Fund said it is ready to allocate the money, provided that will be adopted law on the free circulation of agricultural land and the law on inability to repay nationalized in 2016 “Privat” oligarch Igor Kolomoisky, who has made a significant contribution to the victory of Vladimir Zelensky in the elections of 2019.

Of course, each national government has the debt — it’s kind of a sign of “embeddedness” in the global financial system. Another thing — the possibility of refinancing and the share of expenses on service and repayment of debts in the state Treasury.

For Ukraine the interest rates of servicing debt and the share of budget that is spent on paying debts, extremely high, which is one of the key factors hampering economic and social development.

This debt, which is now accumulated by Ukraine, it is impossible to return in principle, it can only be endlessly restructured.

In addition, the high level of debt leads to strengthen the political influence and impact on sovereign economic policy.

In the epidemic of the coronavirus, the problem of the debt burden on public finances significantly updated. On the other hand, force majeure on a global scale can be a great chance for Ukraine from the point of view of possible improvement of the system of public finances.

The moratorium on foreign debt payments, negotiations with foreign players about partial write-off of debts, de-offshorization of the economy, the reduction of the extremely inflated costs of the state apparatus and power unit, bringing corrupt officials to justice on the background of closed borders is the steps that much easier to do in an emergency situation and switch attention to Western structures to your own problems.

If the resolution on a moratorium on foreign debt payments would lead to the collapse of the credit ratings of Ukraine, which would have made the attraction of outside funding, in the current environment this tool in the hands of Western institutions ceases to be effective.

Every crisis is a chance and opportunity. The only question is the existence of government political will to take drastic, decisive steps that will allow you to solve a number of economic problems accumulated in previous years.

© 2020, paradox. All rights reserved.

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