The International Monetary Fund (Ukraine’s lender), by and large, is only interested in a single thing, which is the solvency of the country’s state budget, as long as the IMF money is borrowed and then returned from this very state budget. Therefore, the IMF seeks to understand the actual solvency of the country.
Once the Fund’s experts reviewed the Ukrainian budget, adopted in 2017, plenty of questions arose on how the Ukrainian authorities planned to achieve solvency if, in addition to a UAH 77 bln deficit laid down in the budget, there was also an even larger hidden deficit, which would become apparent during this fiscal year. Thus, according to the State Treasury’s official data, the budget in 2016 received UAH 616 bln in revenues, while the government forecasts UAH 800 bln expenditures in the budget 2017.
Once the Fund’s experts reviewed the Ukrainian budget, adopted in 2017, plenty of questions arose
There is an actual huge gap of nearly UAH 180 bln between real revenues over the past year and planned expenditures for 2017. Obviously, the IMF is concerned about the gap. It means that, in addition to the planned UAH 77 bln deficit, a huge hidden deficit has not gone anywhere and Ukrainian government will have to deal with it somehow during this financial year.
It is clear that the Fund is awaiting answers from the Ukrainian authorities on how they intend to cover both deficits. That is why the IMF advises - in the form of their requirements to the Ukrainian government – what should be done to cover both the explicit and hidden deficits. For example, Kyiv could either go for ‘grand privatization’ and finally carry it out in 2017 or to do something about the largest expenditure articles that are covered from the state budget (the Pension Fund deficit, the deficit of Naftogaz of Ukraine, as well as the expenditures on major state monopolies and state-owned enterprises).
So the IMF is now being held back solely by a questionable solvency of Ukraine’s state budget. In fact, the only thing they now require from Ukrainian authorities is to present a "road map" of how Kyiv is going to achieve budget solvency.
Today, the issue of the next IMF tranche totaling $1 bln is not critical for Ukraine as it is supposed to be directed at replenishing NBU reserves and addressing the government’s most pressing budgetary problems.
It is clear that the Fund is awaiting answers from the Ukrainian authorities on how they intend to cover both deficits
More important is the very fact of continued cooperation with the IMF because Ukraine’s other lenders and investors are closely monitoring Ukraine’s cooperation with its major creditor. After all, part of Ukraine’s territory is a hotbed of military operations, which means higher risks for the financial world. If such a last financial resort as the IMF refuses to cooperate with Ukraine, it is unlikely anyone else will choose to continue relations.
Andriy Novak is a PhD and Chairman of the Committee of Economists of Ukraine