IMF’s sobering report
Besides the billions of dollars in low-interest loans that the International Monetary Fund has lent Ukraine's underperforming economy, the lender of last resort offers some of the best analysis of the nation's political and economic situation. The latest version can be found in its 111page report released on Jan. 8. Ukraine should pay heed. What's ahead, according to the IMF?
Sluggish exports of mainly raw materials. Imports outpacing exports. Declining gas transit revenues in 2020 after Nord Stream 2 bypasses Ukraine to connect Russia and Germany. Sizable remittances from Ukraine's 2–3 million workers abroad will help cover the trade deficit and increasing debt service obligations. Foreign direct investment will remain low. Banks will continue to struggle with deadbeat borrowers — 55 percent of loans aren't being repaid and should have never been issued. Taxpayers have doled out $20 billion for bank fraud alone. Progress in selling assets of failed banks has been limited. Hard currency reserves remain inadequate. Ukraine's debt-service obligations will start hitting $6 billion to $8 billion annually in coming years.
And more from the IMF: The structure of the economy remains largely unchanged, with key economic sectors still dominated by oligarchs, stifling competition and deterring new entrants. No cases of high-level corruption have been adjudicated, leaving a sense of impunity and disappointment in society. Election-year promises threaten to reverse the modest gains made. Risks remain high because of Russia's 5-year-old war that has dismembered Ukraine and killed more than 10,300 people.
Also: Restructuring the large and inefficient public sector — including through privatization — remains incomplete. The opening up of markets, including by creating a competitive gas market and a market for agricultural land, has still not happened. Growth is projected to slow slightly, to 2.7 percent in 2019, because of worsening terms of trade and rising production costs — notably wages. Inflation will ease, but still hover at close to 7 percent.
To qualify for the IMF loans, the president, prime minister, finance minister and central bank governor have to sign off on commitments. Ukraine's top officials made pledges, including a budget deficit of no more than 2.25 percent of GDP, with revenues of $36 billion and spending of $39 billion, with no major changes in tax policy other than scheduled increases. They committed to pages and pages of reforms in various sectors, including some that are unbelievable, given their track record. "We are committed to build on recent gains in our efforts to tackle high-level corruption and to deliver concrete results," the top public officials promised. In 2019, we, like most in Ukraine, will believe it when we see it happening.