If this is not done, then our country will forever fall into a debt hole and will never be able to remove a credit card from its neck Oops, says economist, financial analyst Alexei Kushch.
Once upon a time, a fighter with credit debt in developing countries, Erie Toussaint, identified several signs of debt, which creditors are obliged to write off to a poor country:
In the future, these principles were actively used by the world's leading scientists on debt policy issues: Kenneth Rogoff and Carmen Reinhart.
There is a precedent for such an argument in Ukraine: we do not give 3 billion dollars. «Yanukovych's debt», considering this loan «odious debt».
Now we have the possibility of using paragraph 4 to restructure Ukraine's public debt — it is clearly « unstable», that is, it diverts state funds from priority tasks: defense, economy, social system.
But there are other reasons.
At the beginning of the war, the currency equivalent of Ukraine's public debt was approximately $90 billion. With GDP at the level of 200 billion dollars. at the end of 2021, we get the ratio indicator «debt ĸGDP» at less than 50%. And a level of more than 60% is considered critical (Maastricht criteria for European integration).
Now imagine that in 2022 our GDP will fall to the level of 90-100 billion dollars, which is quite realistic. We get the ratio of debt ĸ GDP at the level of 100%!!! This is an indicator of the bankrupt country.
Yes, in countries such as Japan or the United States, this figure is higher. But they lend in their national currencies, and our external and partly domestic debt is denominated in euros, dollars and SDRs.
But the debt flywheel does not stop. A significant part of external liquidity comes to Ukraine in the form of new debts. Until the end of the year in the form of loans and Eurobonds with a zero coupon, another 30-40 billion dollars can be attracted additionally. That is, the total public debt will increase to 110-120 billion dollars. and will amount to 120-130% of GDP!!!
What does this mean in simple words?
And the fact that Ukraine will forever fall into a debt hole and will never be able to remove it from its neck credit boa. This level of foreign currency debt is a definite evil.
Why so categorical?
The Maastricht criterion of 60% is calculated very simply, based on two basic indicators: a budget deficit of no more than 3% and a growth rate of more than 5% per year (3/5 x 100 = 60%). Obviously, in the conditions of war, our budget deficit will be much more than 3%. And one cannot even dream of growth rates — there will be a fall.
I also note that the same Kenneth Rogoff highlights an additional indicator of the probability of bankruptcy of a particular country — a comparison of the level of interest on loans attracted by the state and growth rates (in a normal situation, the growth rate should be higher so that the debt service burden in the form of interest payments does not grow, but decreased). So, in a falling environment, when GDP rates are negative, even a loan at 0.1% increases the debt service burden.
In addition, the devaluation of the hryvnia increases the hryvnia equivalent of foreign currency debt and proportionally increases the cost of servicing foreign currency debt for budget.
I'm not talking about the fact that the admission of a country with such a level of public debt in the EU is very problematic.
Someone may say that everything will be written off to us on the eve of accession, but we must perfectly understand that if the situation develops in this way and the public debt reaches such a critical level, the level of subjectivity and sovereignty of the country will decrease significantly.
Equally and the likelihood of foreign policy success.
What to do?
First of all, restructure the debt (external and internal) on the following principles:
This will reduce the level of public debt to 45 billion dollars, or 40-45% of GDP, that is, to a relatively safe level. In addition, another 15-20 billion dollars are placed in the 60% criterion. new loans that Ukraine will have to attract before the end of the year to finance the budget deficit.
As a result, by the end of the year we will come up with a public debt of up to $60 billion, a Maastrichts criterion of 60% and a reduced burden on the budget debt service (payment of interest). But this requires debt restructuring.
Now let's consider who is to blame that this has not happened yet?
The answer is a colossal lobby of financial speculators in the corridors of power. Financial marauders.
A simple example: Ukrainian Eurobonds maturing in September 2022 are quoted at 50% of face value and can bring the buyer a yield of up to 250% per annum!!!
Can you imagine, ĸaĸoyĸush for those who are now buying Ukrainian debts at a cheap price?! And what is the price of insider information about whether there will be a repayment?! And what is the price of making a decision on restructuring for the state, as well as for private investment funds?!
The rate of return of 250% is also a good illustration on the topic of whether Ukraine should repay «debts up to the last Ukrainian» to maintain its reputation as a borrower. The level of risks now levels any reputation. And such significant financial sacrifices only warm someone's pocket, and do not create our prestige as a borrower. In general, a political decision of the first persons of the country is needed here.