IMF downgrades economic forecast for Ukraine. Dubinsky explains IMF’s law

The International Monetary Fund disagreed with the 2020 economic forecast of the Ukrainian government. In its revised outlook, the IMF projected Ukraine’s GDP drop at 7.7%, nearly twice higher than the 3.9% announced by the Prime Minister Denys Shmyhal, and planned in the sequestered national budget adopted on Monday. 

Meanwhile, the IMF issued a positive forecast for 2021, projecting GDP growth at 3.6%, which is actually logical, given the low comparison base laid for 2020.

The IMF also did not agree with Ukraine’s estimate of the national budget deficit: the fund’s forecast for 2020 is a third lower than that made by the Ukrainian government – at 8.2% of the GDP. In 2021, the deficit is expected to decrease to 5.3%. For better understanding, Ukraine finished 2019 at the deficit level of 2% of the GDP.

Theoretically, the deficit of the Ukrainian national budget should be covered this year through an increase of the national debt. It is difficult to imagine now, however, who will dare to subsidize our country. The Cabinet of Ministers openly announced that they planned a tranche under the IMF loan in the revised 2020 budget. However, it is rather unclear whether we will get the tranche.

Budget proceeds plan also envisions rather large domestic borrowings, which none of the key players of the domestic government bond market are willing to provide to the Ministry of Finance for the third week straight. More specifically, the Ministry of Finance wants to borrow at 11-13% annual interest, while the market players are ready to provide financing at 20%, which makes it a rather significant price discrepancy. The government continues to postpone its borrowings, as nobody is willing to lend money at low interest. The only possibility to organize everything quickly is to considerably raise the expenditures for the servicing of the domestic national debt or force state-owned banks to purchase government bonds with the help of the National Bank, which essentially means to launch hryvnia emission.

The NBU board is not resorting to open emission – to direct purchase of government bonds by the NBU. There is information, however, that the NBU is preparing a major refinancing of the state-owned banks. They will start financing the budget. In other words, there will be the emission, but only via intermediaries. The NBU officials are simply trying to deceive the public and divert people’s attention.

Another IMF forecast did not coincide with the expectations of the government. The creditor expects unemployment in Ukraine at the level of 10.1% in 2020, while the Cabinet of Ministers relies on 9.4%.

The new IMF loan programme for Ukraine is the most talked about topic right now, and not only in media, but also in the parliament, the government and the office of the president. The officials are shouting from every corner that the new programme requires adoption of the new law on banking activity by the Verkhovna Rada. That being said, few people truly studied the proposed document.

“The Main Scientific-Expert Department of the Verkhovna Rada issued a clear conclusion on this draft law – it is unconstitutional. Meanwhile, it is being lobbied by the IMF to avoid the NBU board together with Poroshenko that covers for it ending up on the defendants’ bench, in the case of a global banking fraud for the amount of USD 20 billion, which happened in Ukraine. This amount was misappropriated in the course of the 2014-2016 fraud, and was later either moved abroad, or resold to own companies. The new banking law is required so that nobody can challenge the actions of the NBU – bank owners or, most importantly, their depositors, so that the people could not win back their deposits by court actions, when the banks stop releasing them from the accounts or when there is a prohibition on receiving hard currency. In case of the adoption of the new law, nobody will be able to challenge anything in courts. This is a law against Ukrainian depositors,” MP Aleksandr Dubinsky commented on the document.

Andrey Pshenichniy for