Total public and publicly guaranteed debt of Ukraine in July increased by 1.4%, or 1.05 billion dollars, the Finance Ministry said. The total debt amounted to 76,06 billion. In national currency public debt also increased by 0.69%, or by 13.45 billion to 1 trillion 971,15 billion. It turns out that every Ukrainians have 46 596 USD.
Experts believe that the nominal amount of government debt will continue to increase until the end of this year and in 2018, mainly due to the borrowings of the government from international lenders and foreign markets.
“At the same time, given the likely delay in obtaining loans from some international organizations, the growth rate of public debt may be lower than current expectations. As a result, we do not exclude the probability that the debt to GDP ratio will start declining this year and will reach 75% in 2018″, – told the “Today” chief economist at Dragon Capital Elena Belan.
As the debt was formed?
The debts of the state are different. There is no direct public debt and guaranteed by the state, i.e. the different actors of the economy under state guarantees. Both of these debt can external and internal. So, the external public debt represents the debt of the state on borrowed from abroad means in the form of loans and credits banks and international financial organizations, as well as the funds obtained through the placement in international markets of securities.
If you look at the dynamics of public debt, we can see that the changes in hryvnia and dollar terms are the opposite. This is due mainly to the processes of devaluation of the hryvnia.
Growth in 2016 of the amount of public and publicly guaranteed debt due to devaluation of the national currency, ensuring of financing of the budget deficit, the capitalization of state banks, including in connection with the transition to the state property of PrivatBank, and a loan to the Deposit guarantee Fund of natural persons.
Loans under the state guarantees aim to many companies and organizations, because the rates are always below the average – the lender knows that his risk is minimal. Corruption in issuing such guarantee hypothetically possible only at the highest level, but the situation with the payment of loans bad debt of enterprises and state loans issued under the state guarantees is currently 58% of the loan amounts and the debt in amount of UAH 244 mn is registered for legal entities that have already virtually eliminated. So part of this amount, the state will be forced to write off, and the rest to pay creditors.
In recent years, the state briefly gives his guarantee. So, in 2016 they provided in the amount of 16,5 billion UAH. The bulk of 13.5 billion UAH is needed to obtain a loan “Naftogaz of Ukraine” of the IBRD. The money spent on the purchase of gas. The remaining funds have become a guarantee of credits received in domestic banks, some defense companies.
How are we going to pay?
Total payments of Ukraine in public debt due to the state budget in 2017 are estimated at 240,897 billion. According minfinovskih management program debt by 2017, 30% (72,199 billion UAH) the amount of payments on external debt. These indicators are planned, based on existing payment schedules and forecast interest rates and currency exchange rates, although the rates and courses available. All scheduled payments this year are being implemented.
But starting in 2018, payments on public debt will rise considerably. Overall, over the next four years, Ukraine has to pay about $ 20 billion. on the external debt. Prior to this act the grace period on the IMF program also provided for the deferral arrangements with creditors reached in the framework of debt restructuring.
Where to get the money? Possible sources a bit: the economy, foreign and domestic loans foreign exchange reserves. The state of the economy and the level of reserves does not allow to count on them. Therefore, the main cost of new borrowing.
In the budget resolution for the 2018 and recorded: it is necessary “to provide full access to external sources of funding for refinancing of external debt”. According to experts, the government needs to recruit new loans in the amount of from 22 to 30 billion dollars in the next three years.
The IMF won’t give the maximum 2 – $ 3 billion, and the EFF program ends in 2019. A couple of billion we can hope to obtain from other international financial institutions.
Where to get the missing? Either enter the international capital markets, or carry out a new restructuring of the external debt. The first option is complex, and the second highly undesirable. Ukraine with its current state of the economy and low credit scores can draw is that short-term (2 – 3 years) and expensive external loans (7 – 8% per annum). But the government has begun movement in this direction.
Over the next four years, Ukraine has to pay about $ 20 billion foreign debt. The main cost of new borrowing
Recently the Financial Times reported that Ukraine has started preparations for the placing on the market of dollar-denominated bonds and has mandated JPMorgan, BNP Paribas and Goldman Sachs on the transaction. By improving the expectations of investors, the yield on bonds of Ukraine in recent years has declined, with 10-year bonds she made up 7.45% after falling since the spring of 200 basis points.
In late August, Moody’s upgraded the ratings of Ukraine in foreign and national currency by one notch to “Caa2” “Caa3”, the rating Outlook is positive. According to Moody’s, the current government is determined to move forward on reform, “although faced with significant obstacles from influential circles, particularly in connection with land reform and privatization”. The improvement in the external position of the Ukrainian experts associated with considerable payments from the international financial institutions.
Recall that the last time Ukraine placed Eurobonds on the market conditions in 2013: was sold 10-year dollar Eurobonds for $ 1.25 billion. with a yield of 7.5% per annum. Then in 2015, has been restructured several Eurobond issues for a total amount of 15 billion dollars, losses of investors in the exchange was about 20%. The coupon rate all of the restructured editions was set at 7.75% per annum. Russia, which participated in the restructuring suing Ukraine in respect of repayment of Eurobonds for $ 3 billion., purchased in December 2013. The national Bank of Ukraine has previously said that he expects the host government in 2018 Eurobonds totaling $ 2 billion.
- Ukraine will face serious payments on the national debt
The government plans to redeem market their expensive bonds issued for a short period, and replace them with cheap and “long”. For the purpose of this operation was prepared the bill, but the deputies on 5 September, refused to include it in the agenda of the session, although the voting was conducted several times.
A little easier with internal debt. In late may, the Cabinet approved the issuance of bonds of internal state loan in the amount of 229 billion. New bonds need to be exchanged for the previously issued bonds maturing in the years 2017-2030. The term of repayment of new bonds – 2025 – 2047. The annual interest rate on the new bonds will be the rate of inflation over the last 12 months plus 1,5 percentage points. If deflation happens, then the annual interest rate will be 1.5%.
2019 is the most difficult. This year will end the program with the IMF. In the same year in Ukraine will hold presidential and parliamentary elections. Expected to very large payments on external debt (at least 5.3 billion dollars). It turns out that in 2019 he will meet two peaks: pre-election populism and foreign debt payments. This is a very bad scenario for the economy, the hryvnia exchange rate and inflation.