Transatlantic discussion with Hlib Vyshlinsky

Discussion on the 8th meeting of the Transatlantic Task Force on Ukraine (TTFU).

Сolleagues before spoke a lot about decisions that were made by Verkhovna Rada early this week, including the banking law, which was the key issue for the IMF program in Ukraine and it was really the most important for the IMF. It shows whether the government is really interested in making all stakeholders equal or it will still continue with this oligarchy influenced policies. 

We hope that this law will be passed in second reading early next week and together with the law on opening farmland market and the corrected budget law for 2020 that should be pre approved by the IMF it will be enough to have a new IMF program for Ukraine. It is in fact a prerequisite of the scenario of minus 4-5% of real GDP growth in Ukraine this year. 

Otherwise, we could have a full financial catastrophe as we have not only 5 billion US dollars of external debt repayments this year, but we also expect the much larger budget deficit in the last year, we had a budget deficit of approximately 2% of GDP, which is rather really good and conservative fiscal policy. However this year we expect that it could be much higher even a very responsible national Bank is saying budget deficit could be up to 8% of GDP this year. And it could be up to 8% of GDP this year because of decline in tax revenues because of economic decline and quarantined measures. And certainly expenditures could also be much higher because of additional health care expenditures because of expenditures on unemployment benefits, on social assistance, etc. So we understand that having IMF program is only scenario for Ukraine and this conditionality should be fulfilled by the next week. 

The latest as in May, we’ll have the first big wave of external debt repayment including 1 billion repayment of bonds that were issued under the state guarantee of the United States and not repaid this bonds will be not a very good idea. And the second way will be in September. So we expect, such as the IMF program will be much larger than it was previously designed that should be up to 10 billion US dollars. With that should be front loaded for this year in the end of April. And then the second tranche by the beginning of September to help going on with external debt repayments and also financing additional expenditures and budget deficit in this and next months, because of fighting coronavirus.