Servicing Ukraine’s large foreign debt is the major problem currently facing the Ukrainian government, Ukrainian Prime Minister Volodymyr Groysman said on April 20.
Addressing the parliament, Groysman said Ukraine owes $46 billion just on loans from 2007 to 2014. The total debt is even bigger – more than $60 billion, he said. The Finance Ministry, by contrast, has said the entire state debt of Ukraine is $73 billion.
“Foreign debt pressure is the biggest economic problem of Ukraine,” Groysman said during a meeting with the regional press on April 19. “And most of it was borrowed before 2014 – but we still have to return it.”
He said that from 2007 to 2010 the Ukrainian government, then headed by Batkivshchyna Party leader Yulia Tymoshenko, borrowed more than $26 billion. In 2010-2014 the government headed by former Prime Minister Mykola Azarov, borrowed $20 million from abroad, Groysman said.
Groysman’s statement is a warning for Ukraine, especially as reforms in Ukraine have stalled, threatening Ukraine’s aid package from the International Monetary Fund, Timothy Ash, the senior emerging markets sovereign strategist for London-based Bluebay Asset Management Company said on April 20.
In 2015, the IMF approved a $17.5 billion bailout program for Ukraine, but only some $8.8 billion has been actually disbursed.
The National Bank of Ukraine has used much of the cash to replenish the country’s foreign currency reserves, raising them from $5.8 billion on the eve of the 2014 EuroMaidan Revolution, to $18.8 billion at the end of 2017.
But to ensure stable economic growth, the amount needs to be at least $30 billion, experts say.
New lending from international donors is required for Ukraine both to pay back its old debts to boost the economy.
However, it’s been a year since Ukraine receive its last tranche from IMF. Donors stopped providing the aid because Ukraine’s government has failed to carry out the required reforms and meet the conditions for the continued disbursal of the aid package.
Ash wrote that Ukrainian Finance Minister Oleksandr Danylyuk, who has been on a visit to Washington D.C., since April 16, has also been trying hard to assure official creditors and institutional investors that Ukraine can still get its IMF program back on track soon.
“But frustrations all around the building,” Ash said. “The program is seriously off track, and I sense (other) donors are losing faith in Poroshenko’s ability to deliver reform, or take the country on to the next reform level to deliver much needed higher and sustainable growth.”
The expert added the Poroshenko’s government still hasn’t fulfilled many of the IMF’s demands, including several critical ones: raising gas prices, revising the budget, and establishing an independent anti-corruption court.
In 2015 Ukraine and its main creditors agreed to restructure $18 billion in foreign debt, delaying repayments for four years.
Ukraine has to repay some $11 billion to foreign creditors by 2019.
To do list
Ash said that raising gas prices had already been agreed as a prior action for the third review back in April 2017. However, since then, the government has been postponing the price hikes.
“It looks so bad here that the Ukrainian side agreed to hike prices back then, got the IMF tranche, and then went back on their promise to the fund,” Ash wrote.
Another major condition of the IMF and other international creditors is for Ukraine to set up a truly independent anti-corruption court.
That would be the crowning stage of putting mechanisms in place to tackle high-profile corruption, following the establishment of the National Anti-Corruption Bureau of Ukraine and the Special Anti-Corruption Prosecutors Office.
But after the Verkhovna Rada, Ukraine’s parliament, gave initial approval to creating an anti-corruption court on March 1, President Petro Poroshenko’s longstanding resistance to such a body surfaced again.
In an interview with the Financial Times published on March 6, Poroshenko refused to guarantee that the court would be independent. He told the newspaper that he would resist demands by Western donors that they have a “crucial role” in the court’s creation, claiming that this violates Ukraine’s Constitution and sovereignity.
Pay the debt
However, while not yet getting new loans, Ukraine still has to return the borrowed money.
Ukraine has to repay some $11 billion to foreign creditors by the end of 2019, Dmytro Sologub, the deputy head of National Bank of Ukraine, told Finbalance financial news website back in July 2017.
“It is an estimated sum that depends on what is counted. The Finance Ministry’s repayment of foreign debt, the National Bank’s financial obligations to return money to the IMF, and much more,” Sologub said.
“In general by 2019 we have to repay $11 billion,” Sologub said.
But he said he was confident that Ukraine would find the money to pay back its debts, as it is still cooperating with the World Bank, the European Bank for Reconstruction and Development, and the European Union.
The National Bank of Ukraine has reported that in 2017 alone it repaid more than $1.5 billion to the IMF.
Since 2014, the EU has pledged more than 12 billion euros for Ukraine, including a 2.81-billion-euro financial assistance program, more than 3 billion euros in loans and investments, and more than 879 million euros in grants. EU money was used to make improvements in key sectors of Ukraine’s economy.
In 2018, the Ukrainian government expects to get a new 1.8-billion euro financial aid package from the EU.
