To all appearances, Ukraine’s debt policy will soon get a facelift. The parliamentary subcommittee on the state debt has drafted a bill on the state debt of Ukraine, which ties the concept of state loans to a budgeting strategy and innovative development of the nation’s economy. Experts view external loans as the best means of survival and one of the key sources for offsetting the budget deficit. One must bear in mind, however, that borrowed money must be used effectively and returned on time. Otherwise, loans — especially foreign loans — can become a burden to the budget and the nation, and sometimes even a threat.
Does this threat exist today? After all, Ukraine has now reached the peak of payments on the state debt, with thirteen billion hryvnias earmarked in the 2005 budget for payment of the principal and interest on the foreign debt. Yet the risks appear to be diminishing. The state-debt-to-GDP ratio is declining and will not exceed 21% next year, according to forecasts. Meanwhile, EU member states are quite comfortable with their large debts. Yet their advantage is that they use loans exclusively for innovative development, attaching greater importance to direct investments, which, naturally, also go toward innovations.
Estimates of the National Institute for Strategic Research suggest that Ukraine’s demand for investments will reach $150 billion by 2015. Unfortunately, there are no such reserves inside the country, while the present business climate is not well suited to direct foreign investments. This issue dominated a recent roundtable entitled “Debt Policy: Its State, Problems, and Prospects.”
According to Anatoly Halchynsky, presidential aide and director of the National Institute for Strategic Research, the current economic model cannot guarantee us stable, rapid growth in the medium and long term. He therefore supports a vigorous innovative policy, which was declared two years ago but not implemented for lack of mechanisms to stimulate innovative processes. “We are living for the moment, and the resources we obtain from economic growth are largely consumed,” Halchynsky believes. Against this background, the problem of the government’s debt policy is further aggravated by the inability of the legislative and executive power to create not only an effective mechanism for securing the necessary loans, but also mechanisms for putting them to effective use, which is more important.
Volodymyr Maistryshyn, chairman of the parliamentary subcommittee on the state debt, loans, and investments, believes that approaches to state debt management must be founded on a debt policy strategy, based on which the budget must be drawn up, including the minimum and maximum size of new borrowings. “To this end, we must introduce a practice of active management of the state debt, as a result of which the Finance Ministry will no longer be a mere agent of the government. It must switch from simply issuing securities to actively participating in the secondary market of securities, thereby supporting its liquidity and buying out bonds with a heavy interest burden ahead of time,” he said. Maistryshyn admits, however, that the Finance Ministry will find it difficult to handle the scope of this work all on its own. As a matter of fact, it could do this with the help of an authorized agent bank, Ukreximbank is a good candidate. According to Maistryshyn, the appearance of two new players in the financial market of Ukraine will make it possible to relieve the pressure on the state budget and improve the structure of the state debt. One should not rule out, however, that the increase in loans will result in a higher budget deficit, believes Maistryshyn.
