Diving in debt: Expert says 2021 budget met due to aggressive borrowing policy

Head of the Center of Public Finance and Governance at Kyiv School of Economics (KSE) Daryna Marchak says the national budget for 2020 was fully implemented due to the aggressive borrowing policy of the Finance Ministry in December 2020.

"In December, the Finance Ministry borrowed UAH 166 billion [US$5.9 billion] to the state budget, or 25% of the revised annual plan. At the same time, the revised annual borrowing plan was fulfilled by 94% in 2020, including by 95% in terms of domestic borrowing and 92% with regard to external borrowings," she said at an online conference on January 15, an UNIAN correspondent reports.

Read alsoHryvnia weakens to U.S. dollar on Jan 15According to Marchak, the borrowings in December were triple the target for this month, and double the KSE's assessment of the Finance Ministry's ability to carry out internal borrowing, based on the dynamics of borrowings in the past months.

"This amount of expenditure funding became possible only thanks to the restoration of cooperation with international partners, primarily with the IMF and the EU," she added.

New debts features

The expert also drew attention to the fact that the funds lent by the Finance Ministry in December are quite expensive and short-term, that is, their significant part will need to be repaid in 2021.

Read alsoHryvnia's renewed vigor in 2021"In December, the volume of borrowings that the Finance Ministry must repay in 2021 increased by a third – from UAH 336.5 billion [US$12 billion] to UAH 443.5 billion [15.8 billion]," Marchak said.

"At the same time, in December, the Finance Ministry had to significantly increase the cost of borrowing. If in the summer months there was a significant decrease in the cost of borrowing to 6-8%, in December, almost every auction was accompanied by a rise in the interest rate to 10-12%," she added.

Background

The national budget for 2021 provides for a deficit at UAH 246.6 billion (US$8.8 billion), of 5.5% of gross domestic product.

The Finance Ministry plans to reduce the state and government-guaranteed debt from 68% of GDP to 64.4% this year.