Living on credit

The government plans to borrow 600 million dollars to balance the budget on foreign markets by issuing bonds with a maturity date of one year. This will be done based on the decree of the Cabinet of Ministers No.1148 from December 15, which was recently published. According to the decree, the interest will be 6.7 percent per annum, and the final payment will be made on December 21, 2011. Interest will be paid on June 21 and December 21, 2011. The government entrusted the Mi-nistry of Finance to include the repayment and servicing of the bonds in the state budget project for the next year.

Let us remind that the government issued euro-denominated bonds worth two billion dollars in 2010. What does this “life on credit” state policy indicate? What will be the consequences for economy, which, according to high-rank officials, should be in saving mode? The Day asked Eric Neiman, financial expert:

“Maybe it will ‘patch’ some hole in the budget. However, apparently, the country wants to extend the loans from the VTB (the loan can be prolonged for two years at most – Author) [...] I think it is possible, as the loan was given for a very short term, as Ukraine usually issues bonds with five to seven year maturities. The cost is quite high and reminds one of the interest rate of the Russian bank. Let me remind that the VTB loan was given at a rate of 6.7 interest per annum. It seems that Ukraine will not win from it: the money will not reach the budget, or it will simply shift the maturity of the debt, or Ukraine will receive 600 million dollars in addition to what was previously taken. To my mind our economy is on the verge of stable growth but the budget is still problematic. That is why the loan for budget financing remains inevitable. It is like one of the necessary pills for complete recovery. It means that now the budget cannot survive without foreign loans, although the budget project for 2011 is developed in such a way so as to decrease the tempo of state debt growth.”