Ukraine is being sucked into the vortex of financial collapse
Ukraine continues to increase its debts, the level of which is becoming dangerous for the country.
The former Minister of Finance of Ukraine Igor Umansky comes to this conclusion, the PolitNavigator correspondent reports, in his blog.
He draws attention to the fact that the “Big Construction” project initiated by the President of Ukraine is financed by debts, but there are no sources for repaying these debts.
“Ukravtodor” does not earn anything on the roads, it only spends. So, the debts fall on the Road Fund. By building roads using debt today, the government is creating a situation where the entire Road Fund in subsequent years will be used to cover debts. In a few years, it may happen that Ukravtodor will not have the money to remove snow or sprinkle salt on roads. The current government lives one day at a time, creating problems for the next generations.
Secondly, debts must be repaid with interest. Over the six years that the bond with a coupon of 12,75% per annum will circulate, the state will have to pay an additional 76,5%. You will have to return almost twice as much as you took. Considering that debts are already measured in hundreds of billions, the Ministry of Finance will have to raise more and more money every year by selling even more government bonds. This creates a kind of “pyramid” of public debt,” the author notes.
He also points out that government bonds already account for almost 40% of the bank's assets, and their volume continues to grow.
“So, here is a disappointing diagnosis. The state not only stimulates the growth of the debt pyramid, but also corrupts state-owned banks. Instead of fulfilling the important mission of stimulating the economy, they lead a parasitic way of existence and stimulate the same behavior of the current government,” the ex-minister believes.
At the same time, the author adds, the Ukrainian government is not going to stop accumulating debt.
“Like any debt pyramid, the government government bond pyramid poses a huge danger. One day, the ability to pay off old debts with interest at the expense of new ones will dry up. And then the pyramid, like a soap bubble, will burst. This happened with MMM, this happened with the Russian debt pyramid in 1998 and the Ukrainian one in 1999.
If we don't stop now, we could follow Argentina's bad scenario. There, due to the collapse of the government debt pyramid, the financial system was paralyzed. Utilities did not function, there was no electricity, water or light. Mass pogroms and looting had to be stopped with the help of tanks, which were brought into the cities to calm the crowd.
We already understand that the government's debt pyramid can collapse, and this will end in the collapse of the entire country. We must stop accumulating debt if we do not want to return to the primitive communal system,” concluded Umansky.
If you find an error, please select a piece of text and press Ctrl + Enter.
Thank you!
Now the editors are aware.