Our heavy debts
Experience shows that debts are a bad omen. If you want to spoil a friendship with someone, lend them some money. And, of course, we don’t like to pay our debts because we borrow someone else’s money but pay back our own.
The situation with the public debt is also complicated. People’s thoughts about it change drastically when their attitude to the government changes. We all remember that when Ukraine was in the grip of the acutest crisis and economic slump, Deputy Prime Minister Viktor Pynzenyk tried to convince us that it was neither painful nor dangerous to borrow from international financial organizations. Now that we have been on the upswing for nearly seven years, he is sounding the alarm over almost every new hryvnia that we owe. In this case he is right more than ever before because debts are really a bad and risky thing for the country. So what is the real situation?
Ukraine’s direct and guaranteed public (national) debt increased in July 2007 by 1.49 percent, or $231 million, to $15.743 billion, says the official Web site of the Ministry of Finance. On the other hand, the consolidated public debt — $15.95 billion in January — fell by 1.3 percent, or $207 million, in July. As for the public direct and guaranteed external debt, the finance ministry claims that it was $12.343 billion (78.4 percent of the total public direct and guaranteed debt) as of July 31, 2007. Meanwhile, the public direct and guaranteed domestic debt was a mere $3.4 billion as of the same date.
The Ministry of Finance also claims that Ukraine’s public direct debt was $13.126 billion as of July 31, including the public direct foreign debt of $9.781 billion and the public direct domestic debt of $3.345 billion. Ukraine’s guaranteed debt was $2.617 billion as of the same date, including the guaranteed domestic debt of $54.7 million. In addition, in January- July the public direct foreign debt decreased by 0.2 percent, or $22.4 million, the public direct domestic debt increased by 1.7 percent, or $56.7 million, and the guaranteed debt of Ukraine dropped by 8.4 percent, or $241 million.
Ukraine’s 2007 state budget sets the upper limit of the public domestic debt at UAH 20.275 billion and $1.034 billion as of Dec. 31, 2007.
Are these figures dangerous for our country now? Judge for yourselves: the National Bank’s gold and hard currency reserves have nearly reached $27 billion. On the other hand, the Ministry of Finance has always had to reduce external borrowings and increase internal ones. So far, it has had little success. Last Monday Mykola Azarov’s ministry again tried to float three-, four-, seven— and ten-year domestic government bonds (OVDPs) at a new primary auction after a failure on Thursday — without any spectacular success. This is why many experts believe that the Ministry of Finance has no other option but to increase the bond interest rate.
But this may lead to a budget deficit. Still, Ukrsotsbank experts expect that the ministry will have to do this anyway because it will be far more difficult to float OVDPs in the fall, owing to the expected reduction in banks’ liquidity. “Moreover, the Ministry of Finance will have to attract UAH 1.55 billion in the current year, which will only increase the need for additional funding because Ukraine’s state budget had a deficit of UAH 1.1 billion in January-July — for the first time this year,” the experts say. They also say that expenditures will increase in the fall because of the elections and the need to implement the planned state budget expenditures.
At the same time, it can be predicted right now that the country will not perish for lack of money. The same analysts claim that investors are not worried about Ukraine’s debts. In their view, this indicates that, in spite of capital “running for quality,” the total deposits of OVDPs by non-residents dropped by just UAH 293.4 million, or 12.3 percent, in the first 20 days of August. But securities were purchased by Ukrainian banks and other buyers, including Ukrainian foundations. In the first 20 days of August the total value of OVDPs in circulation increased by 1.3 billion hryvnias to 8.01 billion hryvnias, thanks to the finance ministry’s active efforts to sell securities at primary auctions, Ukrsotsbank notes.
The Ministry of Finance also received a compliment from the Ministry of Labor and Social Policies the other day. According to the labor ministry, Ukraine is now showing the lowest wage arrears since this matter came under the state’s statistical scrutiny. According to the State Statistics Committee, as of Aug. 1 wage arrears were UAH 802.5 million, which constitutes a mere 4.8 percent of the Remuneration Fund’s figure for July. By contrast, in August 1999, when wage arrears reached an all-time high of UAH 7.19 billion, the correlation between the amount of this debt and the Remuneration Fund was almost 310 percent. Sorry, Mr. Pynzenyk, together with you we all wanted to tell the current government leaders off, but the truth is they do not forget about their debts.
