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Monday, March 12, 2018

The new IMF loan Ukraine will spend on the repayment of old

Kiev says the long-awaited news – the international monetary Fund has given Ukraine another loan. Expected in the coming days, a billion would really help the country to patch holes in the budget. However, according to the opinion of Ukrainian economists, the IMF money Ukraine are much more harm than good.

After a long break, the IMF again decided to help Ukraine with money.

“Billion will not solve all the problems of Kiev, but only will help to cover some immediate needs, gaps in the budget of Ukraine”

Last year Kiev has received only two tranches – for 5 and 1.65 billion dollars. The third and fourth tranches received was not (as at the previous funding program in 2014). There was a pause for a year.

First, the Ukrainian authorities expect to receive $ 1.7 billion third tranche. In the fall of 2015 it is not given, then promised it in the summer of 2016, but the Fund again denied because of the failure of a number of conditions of Ukraine. In the end, credit will be given only in September 2016, and its value will be one and a half times less – only $ 1 billion.

Where will the loan?

The Minister of Finance of Ukraine Alexander Danilyuk claims that the IMF loan will help Kiev to achieve financial stability. “A very positive signal for investors. Tranche will go to the reserves of the NBU (national Bank of Ukraine) and contribute to stability of hryvnia exchange rate, and hence the stability of the financial system,” he said.

The NBU is waiting for the transfer of money within a few days. A large part of the tranche will come in the form of SDR (special drawing rights, under this wording in the documents is artificial backup and means of payment IMF) and other international currencies. The money Ukraine will be able to spend to pay off interest on its debt, including debt to the IMF.

Yes, the Finance Minister is partly right, speaking about a positive signal to investors. A new tranche paves the way for political investment from the US and the EU. Now with more certainty we can say that the US government will provide Ukraine loan guarantees for a billion dollars under them in turn, Kyiv, Ukraine may place Eurobonds, points Vadim Iosub of “Alpari”. In addition, the EU could finally give Ukraine 1.2 billion euros in macro-financial assistance.

Another positive point is the support of the IMF gives Ukraine the opportunity to still gain from European banks ‘ loans to buy imported gas at $ 500 million. This means that Europe will be more likely to freeze in winter.

Taken together, this, of course, support the Ukrainian economy, but is unlikely to bring it out of pique. To exit from a crisis is that Ukraine learned to earn more than you spend, and far from it. Exports and remittances of migrant workers have been and remain the major sources of currency coming into the country, but both this source after the Maidan fail for good reason: with Russia, the bonds are broken, and with Europe in the same way does not work out.

The price of the loan

What price was received this billion dollars? In exchange for the loan of the Ukrainian authorities to seriously cut social spending and raise tariffs. So, in the spring of tariffs for gas for the population were similar to the EU, the tariffs for other utility services to that are coming close. As a result, some Ukrainians, the amount of utility bills exceed their income.

Also the state budget of Ukraine under pressure from the IMF refused to help schools, hospitals and kindergartens with utilities. The main objective of the Fund is to achieve from the Ukrainian authorities to reduce the deficit of the state budget.

He really is growing alarmingly. For seven months of 2016 decifit budget was already of 22.88 billion – and it very much. For comparison, in 2015, there was a surplus of about 15 billion UAH, but at the end of the year a deficit of more than 31 billion UAH.

As explained by Ukrainian economist Oleksandr Okhrimenko, it was such a cunning ploy Yatsenyuk, when he during the year, drew a budget surplus and have enough for themselves and their “reforms”, but in the end it all ended with the budget deficit and the emission of the hryvnia. “Now is not Yatsenyuk, but nothing has changed. In this situation there is a danger that by the end of 2016, the budget deficit may be about 100 billion UAH”, – said Okhrimenko.

The IMF issued $ 1 billion may be enough just to patch the existing hole in the budget at 22.8 billion UAH (to 0.87 billion us dollars). However, plugging new holes, which will likely appear before the end of the year, this is not enough. Will there be a fourth tranche this year – the big question.

What this means for the population of Ukraine? In the end, nothing. This is only a temporary relief problem record budget deficit. Billion will only allow you to “close any short-term needs, gaps in the Ukrainian budget”, says RIA “Novosti” the first Deputy Chairman of the Duma Committee on economic policy Mikhail Emelyanov.

Even the Association with the EU did not help Ukraine. After two and a half years after its signing and the beginning of cooperation with the IMF, we may state that Ukraine’s exports to the EU were more prior to the signing of the Association agreement with the EU and creation of free trade zone.

What will happen next

As for the possible next tranche from IMF for Ukraine, for Ukrainian politicians will have to pay less. And again the price is going to touch social obligations. The head of the IMF Christine Lagarde is quite clearly made to understand what now awaits from Kiev.

She urged Ukraine to pension reform and “a balanced tax policy.” The Ukrainian authorities should not prevent changes in tax policies that lead to growth deficit, said Lagarde. In fact, the IMF calls at least not to reduce the tax burden, which in the last two years in Ukraine increased significantly. The important thing is that the IMF considers Ukraine wrong the other way – reducing the tax burden to local business began to emerge from the shadows to private investors, including foreign ones.

In addition, the IMF has been trying to force Kiev to cut the budget deficit of the Pension Fund by raising the retirement age.

Finally, the IMF will wait for Ukraine to continue to fight corruption and improve governance. Plus strengthen the banking system through the recapitalisation and resolution of problems with lending and impaired assets. The national Bank of Ukraine, hearing the IMF, on Wednesday even reduced the rate from 15.5 to 15%. Such a small easing of monetary policy is unlikely to unfreeze the lending in the country, which is now virtually absent.How the rising debts of Ukraine

Another condition Lagarde called the need to resolve definitively the question of sovereign debt, obviously, referring the debt to Russia to $ 3 billion. Moscow voted against the loan Ukraine, even though he knew that in General this situation cannot change.

“The meeting of the Board of Directors of the Fund on the issue went too fast, the discussion almost was not. Moscow insists that no money (IMF) of speech should not be, not yet solved the issue on debt of Ukraine in Russia,” said Russian Finance Minister Anton Siluanov.

He assured that Russia will defend its rights to continue. “We are talking about the trial, which will begin early next year. If the Ukrainian side will make constructive proposals to resolve our dispute, we are ready in the pretrial order to consider these proposals. Provided, however, that the offers should be better than that of commercial lenders,” – said Siluanov.

As IMF loans are hurting the economy of Ukraine

Most surprisingly, how exactly Lagarde, giving a loan to Ukraine, assessed the current economic state of the country. According to her, Ukraine is showing signs of recovery, despite the difficult external environment and serious economic crisis: activity is picking up, inflation is slowing and confidence is growing. Lagarde believes that this progress is associated with sound macroeconomic policies of the authorities, steps to raising rates, and also measures on restoration of the banking system.

“Tears in my eyes when I read the statement of Mrs. Lagarde, why did they give the Ukraine another handout. Lagarde is a great comedian, because this is the only way to understand the words that Ukraine’s economy is reviving, that is, incomes are growing rapidly, and the reforms just made Ukraine an economic miracle. While Mrs. Lagarde did not mention any figures, which would confirm her words,” – says Alexander Okhrimenko.

“In order to assess the effect of IMF reforms, any Ukrainian enough to open your wallet, count the money and remember how much money there was in September 2013, when Ukraine did not take IMF loans and did not fulfill the brilliant recommendations of the IMF”, – says the expert. “Actually Ukraine has got to the stage of deep and long crisis, which largely formed the fault of the IMF recommendations,” says Okhrimenko. In Ukraine the next tranche of the IMF, of course, imagine how great the success of Petro Poroshenko. Few people think about the consequences of credit bondage.

“In 2013, Ukraine actually paid off the IMF loans. Then had to pay about $ 2 billion, and it could once and for all to give up harmful the advice and recommendations of the IMF. But after independence our government is very fond of the IMF and started to take out new loans. As a result, now you will need to repay about $ 12 billion. No one asks the question, how do we these loans will repay,” says Alexander Okhrimenko.

This year Ukraine still repays only the interest on the IMF loans, but in 2017 it will have to also repay the loan. In General, in the year 2017, and Kiev must return to the Fund of slightly more than $ 1 billion. In 2018, estimated the Ukrainian analytical centre, Kyiv will have to return to the Fund of more than $ 2.2 billion. In 2019 is still $ 1.7 billion, and then each year to give the IMF $ 1.2 billion up to 2025.


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