Scared off by surprises: why IMF is not deciding on another tranche for Ukraine
The mission of the International Monetary Fund (IMF), having visited Kyiv in September, flew off to consult and decide on whether to grant Ukraine the next tranche or not. However, there has been no decision yet. And the reasons for the delay can be understood. The mission made an announcement: Ukraine can count on the next tranche (as it is currently being discussed, it may amount to at least $2 billion) only after the final approval of the State Budget for 2019.
This position of the IMF is quite clear: the Fund seeks to protect itself from the possible surprises that may suddenly arise in the next year's budget between the first and second readings. Last year, during the previous budgetary process, there was a similar story: between the first and second readings, suddenly there appeared the idea of doubling the minimum wage twofold from UAH 1,600 to UAH 3,200. It is from such surprises that the IMF is willing to protect itself - they intend to first see the final version of the State Budget, adopted ultimately as a law.
According to the statement of the IMF mission, the budget is the main obstacle, the main barrier for Ukraine to receive the next tranche
As we can see, the budget process is now accelerating, and between the first and second readings there is no major pause, as in previous years. That is, the Rada is already considering the State Budget for the next year. This suggests that the government, along with the parliamentary majority, is in a hurry to adopt the budget as soon as possible, so that it would be possible to rely on the IMF tranche, because without it the government is unlikely to be able to close the fiscal year.
Thus, according to the statement of the mission, the budget is a major obstacle, the main barrier for Ukraine to receive the next tranche.
As far as I understand, now all the technical conditions have already been worked out in advance, and only the principled decision remains to be taken - to grant the tranche or not. Therefore, if the budget is approved, literally in a few weeks, in a month max, we can expect the IMF's positive decision on Ukraine.
If there are no external infusions from the IMF, then Ukraine simply will not be able to serve the state debt with the help of the state budget alone
However, we need to understand what will happen if the IMF tranche is not granted this year. How the Ukrainian economy will react to the lack of external infusions? If there are no external infusions from the IMF, as well as the European Union, whose assistance is closely linked to the IMF tranche, then Ukraine simply will not be able to serve public debt with the help of the state budget alone.
In this case, we will have only two options.
The first is to attract debt resources in the domestic and foreign financial markets. But then we will have to pay very high interest rates: since Ukraine is a crisis-hit country, with a crisis economy, and it does not have a program of cooperation with the IMF, it will have to pay high interest rates.
The second is to declare the State Budget's failure to service the debt. This is precisely what the state budget default is.
There is no third option.
Therefore, if the government, together with the parliamentary majority, has accelerated the budgetary process so much, as never before, obviously they will do everything to adopt the budget as soon as possible and accordingly receive IMF money this year and, consequently, the EU money, too.
Andriy Novak is a Chairman of the Committee of Economists of Ukraine, Candidate of Economic Sciences