IMF’s sober­ing re­port

Kyiv Post - - Opinion -

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.

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