Prime Minister Groysman's dangerous game
I just fail to understand our Prime Minister Volodymyr Groysman. Over the past few months, so much has been said repeatedly about the need to fulfill the remaining requirement of Ukraine's key creditor, the IMF, by finally raising gas prices for the population, that it has long become very clear: there is no particular choice. The country is either facing a default with all terribly painful consequences or it will have to cut very very tightly its budget expenses, which, amid the ongoing war with Russia and the approaching presidential elections, will be a rather difficult task to complete. It seems to me that it will actually be impossible. Meanwhile, on Friday it became known that Groysman's Cabinet held a secret meeting where the government … extended the existing gas prices regime until October 18.
The hryvnia will come under more pressure. There will be a devaluation. Along with the dollar rise, prices for all goods and services will also increase
This is despite the fact that in recent months the country's leading economists, including the advisers of the Strategic Reform Group, leading business associations and investment companies have written open letters and held press conferences, trying to reach out to the prime minister and parliament leaders. They all clearly noted that it is unrealistic to pass the peak of payments on Ukraine's foreign debt (after all, it's more than $10 billion that the country must pay back) without cooperation with the IMF. The math here is simple. For example, the IMF by the end of 2018 gives, at a minimum, about $2 billion, and then the rest of our lenders will follow suit – the European Union with its EUR 1 billion, the World Bank with $800 million, etc.
And yes, this $5 billion that Ukraine might be able to attract from international organizations will also have to be paid back. But these funds are given at 3%, while at the moment, the government borrows from private traders in U.S. dollars from 6% to 11%, and in the hryvnia equivalent – at 18%.
There was another very important nuance – all experts, economists, and advisers called on the authorities to refrain from delaying the gas issue and raise prices as early as this summer. That's because if the issue is postponed to autumn, the IMF will definitely raise the budget issue. The Fund will definitely wish to wait and see the parameters of the country's main financial document. And so it happened.
Groysman held the issue back too long, until autumn came. The IMF mission arrived, exchanged smiles, and left. They even issued a statement, saying they were generally satisfied with the constructive work and that negotiations were continuing. But what's next? "Where is the money?" There's none, it figures.
Ukrgazvydobuvannya is already choking with money as the profitability of gas production jumped above 250%. At the same time, with the rise in gas prices, profitability will skyrocket
It was my hope that Groysman will still be able to persuade the IMF to implement the rise in gas prices for the population within several years. After all, the pricing formula really seems untransparent. Now Ukrgazvydobuvannya is already choking with money as the profitability of gas production jumped above 250%. At the same time, with the rise in gas prices, profitability will skyrocket. It is clear that something needs to be done with this formula. Besides, there is no gas market. Why do we have Dmytro Firtash's regional gas companies being a monopoly in gas supplies to the population?
Naftogaz CEO Andriy Kobolyev last week gave people hope, reporting the good news that the Ukrainian government had reached a principled agreement with the IMF on a gradual increase in gas prices to the level of import parity until 2020. But it turns out that there is no such agreement.
This means that the hryvnia will come under more pressure. There will be a devaluation. Along with the dollar rise, prices for all goods and services will also increase. With the increase in gas prices, those who do not receive subsidies would have to pay more for gas and hot water, but now they will snatch much more money from our pockets. I'm not even talking here about the political tensions amid the upcoming campaign. Therefore, it seems that Volodymyr Groysman started (consciously or not) a very dangerous game. Is it only because he wishes to be perceived as a good man on the eve of the upcoming parliamentary elections?