The end of 2014 turned out to be very difficult for Ukraine. It was quite often heard among the masses and the media that the country in the near future simply could not pay the bills, and default in Ukraine would be inevitable. The prerequisites for this trend were serious problems in the financial sector. Panic moods were formed due to a significant reduction in resources, thanks to which the state was supposed to fulfill its obligations.
Data
As of January 31, 2014, the country's external public debt amounted to 222.4 billion hryvnias, or 27.8 billion dollars. This figure corresponds to 38% of the total debt that the country guarantees and which equates to 585.3 billion hryvnia, or 73.2 billion dollars. By the beginning of 2015, the state was obliged to pay about 12.7 million hryvnias, and this is only for external guaranteed debt. In accordance with the state budget, which its author Yatsenyuk calls far from ideal, in January payments amounted to 6.03 billion hryvnias exclusively for debt servicing. The payment of the principal amount of debt amounted to only 6.67 billion hryvnia.
What caused the excitement of experts?
Disputes among experts about whether a default will take place in Ukraine or not were caused by a sharp reduction in the country's gold and foreign exchange reserves, which is used to service external debts. We can talk about a reduction in assets in November 2014 compared with October by 20.82%. If you translate the indicator into a monetary format, then it will amount to $ 2.621 billion. Moodys agency, which employs 4, 500 experts from 26 countries, reacted negatively to this statement. It made a forecast of default in Ukraine, operating on the fact that over the past 10 years, ZRV has reached its record low.
What does the government say?
Despite the fact that the probability of default in the country is considered by many experts with a high degree of probability, the government has its own beliefs in this regard. The head of the National Bank of the country, Gontareva, says that the situation is under control, and the result of cost overruns is an attempt to maintain the national currency at the level of 8 hryvnias for 1 dollar and support the military conflict in the east of the country. Unsuccessful repeated attempts to resolve the conflict, which ended in failure, became the prerequisite for the fall of Ukrainian Eurobonds. Despite the run-up of the budget adopted on December 29, 2014 and the actual situation, according to which the budget deficit amounted to 63.67 billion hryvnias, the government at the beginning of the year actively said that there was enough money for everything. However, only one fact of a lack of money for debt servicing already speaks of a full-blown financial crisis. It will be possible to cope with the fulfillment of obligations on debts only with the active support of external creditors.
What is default?
The default in Ukraine can be seen as a kind of protective barrier that can protect the country from total economic bankruptcy. The mechanism of the procedure provides for providing the borrower with an opportunity to repay the debt according to an optimized scheme. We can talk about debt restructuring, including deferred payments, until the country comes out of the crisis. In general, the phenomenon will provide an opportunity to restore the domestic economy of the state. As for the theoretical side of the issue, then only one mention of this term causes panic in society.
What phenomena are experts talking about due to default in Ukraine?
If an official default in Ukraine is announced, mass lawsuits will begin to appear from the population and business representatives in the direction of banks and guaranteed deposit funds, in the direction of organizations from the banking sector that will try to manipulate the current situation. According to experts, the number of litigations between contractors will increase as a result of a reduction in bona fide payers in the country. The consequences of default for Ukraine are very difficult to assess, since difficulties in the banking sector of the state will leave an imprint on every branch of activity and development of the state.
Outflow of investments only complicates the situation
Vasily Yurchishin, who holds the post of expert on macroeconomics, says that a rather large outflow of investments has shaken the situation in the country. The first thing that discourages foreign investors is a military conflict in the east. We can talk about fairly low ratings of the country at the international level. The State Statistics Service reports that between January and September, only 1.8 billion hryvnias were invested in the state economy. It is during this period that there has been a decrease in the increase in direct foreign investment by 14.9%. This is directly related to the devaluation of the hryvnia, which, according to official data provided by the National Bank of the country, amounted to 58.9%. The government reassures the population that the country is not without support from America, China and the EU, tranches from which can solve all the problems of the state. Despite the prevailing circumstances, almost no one undertakes to declare that Ukraine is on the verge of default. Bets are placed on the opportunity to circumvent the phenomenon due to the strong support of partner countries.
