Kiev began negotiations with international partners on restructuring the external debt of Ukraine in connection with the costs of combating the spread of the coronavirus COVID-19. This was stated by the head of the Ukrainian government Denis Shmygal, speaking in the program “Freedom of Speech” on the ICTV channel.
Speaking about the external debt of Ukraine, the Prime Minister noted the need for restructuring. Shmygal explained that Kiev had already begun negotiations on this topic, but now there is a "colossal struggle for money" in the world.
“All countries today are trying to either borrow or get help, and we act like all developed countries in the world do - we are competing for a cheap financial resource for our budget. These are the sources from our international partners, ”the head of the Ukrainian government emphasized.
On preconditions
Earlier, President of Ukraine Vladimir Zelensky held a telephone conversation with Managing Director of the International Monetary Fund Kristalina Georgieva. According to a statement posted on the Ukrainian leader’s website, the parties discussed the expansion of Ukraine’s cooperation program with the fund to support reforms and overcome the challenges that the Ukrainian economy faced due to the coronavirus pandemic.
“We discussed an increase in the amount of Ukraine’s support from the Fund during major economic challenges facing the global pandemic,” Zelensky said in a statement.
It should be noted that in early March, representatives of the IMF reported significant progress in dialogue with Kiev on initiatives aimed at ensuring stability and growth of the Ukrainian economy.
According to the fund, such conclusions were made following a trip to Kiev by a group of specialists who had been with the mission in the Ukrainian capital since February 20. The IMF promised that negotiations would continue.
- Kristalina Georgieva and Vladimir Zelensky
- © Press Service of the President of Ukraine
In December 2019, Zelensky and the IMF leadership announced that the parties were able to agree on a new package of financial support for Ukraine.
The agreements reached provide a new loan of $ 5.5 billion to Kiev, the funds will be transferred within three years.
At the same time, Georgieva noted then that the decision on new tranches to Ukraine should be approved by the IMF leadership. According to her, the provision of funds depends on the effectiveness of reforms in the country.
As the head of the fund explained, there are preliminary measures that Ukraine should implement. For success in the economy, it is necessary to strengthen the rule of law, increase the integrity of the judicial system and preserve the results achieved as a result of the improvement of the banking system.
Recall, Ukraine joined the IMF in 1992, after independence. Throughout the entire post-Soviet period of its history, the country has failed to abandon external borrowing. By 2007, Kiev was able to pay off loans taken in the 90s, but the global economic crisis of 2008 forced the Ukrainian leadership to seek help from the IMF again.
The Fund sets strict conditions for receiving financial assistance - this is not only about fighting corruption and improving the judicial system, but also about cutting social spending and budget support for the population.
For example, in 2009, the IMF froze cooperation with Kiev and refused to allocate another tranche after the Rada raised the minimum wage and pension in Ukraine.
Debt hole
A new stage in cooperation between Ukraine and the fund began in 2014, when the country found itself in a difficult situation amid a rupture of trade and economic ties with Russia, as well as a sharp increase in military spending.
In April 2014, the IMF Board of Directors approved a loan to Ukraine in the amount of $ 17.12 billion for a period of two years. At the same time, in order to receive funds, Kiev undertook a number of reforms, including the liberalization of prices for housing and communal services for the population that had previously enjoyed benefits.
The new four-year lending program of Ukraine was approved by the IMF in early 2015. Then the parties managed to agree on a credit line of $ 40 billion. And at the end of 2018, the IMF board of directors agreed to open a new 14-month support program for Ukraine in the amount of $ 3.9 billion.
- Passengers of ground transport in Kiev after the closure of the subway due to the threat of the spread of coronavirus
- Reuters
- © Valentyn Ogirenko
Ukraine is struggling to service the growing public debt, and the government has to take new loans not for the development of the economy, but for repayments of old debts, experts emphasize.
As Mikhail Krivoguz, a leading researcher at IMEMO RAS, noted in an interview with RT, over the past decades, Ukraine’s debt dependence has only grown.
“All these loans more and more dragged Ukraine into the debt hole, now it has to give back the loans it received earlier, for this new loans are being taken. The situation is aggravated by the fact that in 2018, 2019 and 2020 there is a peak in the obligations taken earlier, ”the expert noted.
For example, in 2018, Kiev had to pay $ 12 billion in public debt, and for 2019, over $ 15 billion was already required for these purposes.
It even came to talking about a possible default of Ukraine, which the oligarch and former head of the Dnipropetrovsk Regional State Administration Igor Kolomoisky proposed to Vladimir Zelensky.
According to an RT source in the Fatherland party, now the Ukrainian leadership is in a hurry to get additional support from international partners.
“Financial problems are growing like a snowball, Ukraine, with its not very healthy economy, will be more difficult than other countries to survive the consequences of the pandemic. Another factor was the increase in budget expenditures, for example, the president had earlier promised to increase pensions by 1 thousand hryvnia. Not to mention the additional spending on health, they can reach $ 3.57 billion, according to rough estimates. And at the same time, the authorities will forgive the debt restructuring, the West is unlikely to like it, ”the representative of the Fatherland said.
A similar opinion is shared by the source RT in the Ukrainian Ministry of Economics.
“Now there is no place to take funds, in the current situation in the world, it will not be possible to sell government securities. Printing hryvnia is also not an option, it is the path to inflation and impoverishment. Therefore, the only way out is to appeal to the IMF. The government is ready literally in a fire order to fulfill any requirements of the fund now, ”the source said.
On the verge of default
According to experts, Kiev initiated negotiations on the restructuring of external debt in a difficult period for the global economy.
In February, the global stock market began to fall; in most countries, stock indices fell to their lowest levels in recent months. The coronavirus pandemic COVID-19 has put on the brink of death entire industries around the world, such as tourism, passenger transportation, catering. So, in the US financial and economic indicators have fallen below the level of the last two years, and this trend is gaining momentum.
- Gettyimages.ru
- © Spencer Platt
On March 12, all major US stock indices collapsed by almost 10%. According to American media, this is the largest stock market crash since Black Monday 1987, when the Dow Jones index fell immediately to 22.61%.
Countries affected by coronavirus are now in dire need of support. For example, the European Commission has already promised to take Rome's unforeseen expenses into account when evaluating Italy’s economic and budget indicators.
At the same time, for Ukraine, a pandemic could result in a 5% drop in GDP this year, such a forecast was made by the deputy head of the office of the President of Ukraine Yulia Kovaliv, speaking at the online discussion “Sovid-19” organized by the European Business Association (EBA).
According to Ukrainian authorities, the additional cost of combating coronavirus could be $ 3.5-4 billion.
According to a RT source in the Ukrainian Foreign Ministry, Kiev will be able to agree on a debt restructuring with the IMF.
“Yes, many are tired of Ukraine with its problems. But if you don’t give money, it will lead to a social explosion, which can become a problem for all EU countries. In fact, money is needed to repay previous debts. The government hopes that after the allocation of a new tranche of the IMF, other lenders will give loans. And already these funds can be used to cover the budget deficit, a size that no one understands for sure, ”said the representative of the Foreign Ministry.
According to Mikhail Krivoguz, a leading researcher at IMEMO RAS, without support Kiev will not be able to service external debt, payments on which will total $ 17 billion this year.
“Most likely, Kiev will now achieve concessions from creditors in the form of transfer payments. But the IMF is not taking unilateral measures, it will require the speedy implementation of reforms, including the opening of the agricultural land market. At the same time, if the world economy collapses, no one will support Ukraine, it will wait for default, ”the expert said.
A similar point of view is shared by Vladimir Zharikhin, deputy director of the Institute of CIS Countries. As the expert explained in a comment to RT, now Kiev will seek either additional tranches from partners, or deferral of current payments.
“Today Ukraine is at the peak of payments on the IMF’s external debt, the situation will be aggravated by the consequences of the coronavirus pandemic, due to which the work of the industrial sector has almost stopped. I think that they will not give new loans to Kiev, but they can give a delay. Most likely, creditors will be able to restructure Ukrainian debts, but only in the coming months, nothing more, ”the expert summed up.