Ekaterina Zhilkova
01 December 2020 16: 07
Headings: News Policy Economy

National Bank prints hryvnia and there is no other option to save the state budget, - ex-minister of social policy Reva

Another problem for the Cabinet of Ministers in 2021 may be this year's budget. There is a possibility that the Ministry of Finance will not be able to cover the deficit in 2020 through loans. Because of what, the government will have to abandon part of the costs and transfer some payments already to 2021.

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National Bank prints hryvnia and there is no other option to save the state budget, - ex-minister of social policy Reva

Head of Parliament Dmitry Razumkov promised that the Rada would have time to adopt the state budget for next year "before New Year's Eve." This is gratifying to hear, but in any case, the budget deficit in our country cannot be avoided - the only question is the number. To close this donut hole, the deputies and the government came up with different ways: to introduce a new taxation system, resort to loans, both external and internal, and much more.

However, there is also an opinion that, perhaps, the most successful solution is to simply print the missing money.

"But the issue of the hryvnia directly leads to inflation!" economists say.

“I don’t see any other option. They will either print 100-150 billion hryvnias, since there is nowhere to borrow. Or part of these expenses will be transferred to the next year.”, - sure Dmitry Boyarchuk, director of CASE-Ukraine

KlymenkoTime figured out this difficult issue. Andrey Reva, the ex-minister of social policy explained to us that it is not worth being afraid of the issue of money. Moreover, he is sure that "stamping the hryvnia" is very important for Ukraine right now. He also told what will affect the exchange rate in the coming months, how the issue will affect the tranche from the IMF, and why other ways to solve the problem do not suit us now.

"In order to support the economy in a pandemic, the leading countries of the world are demonstrating a similar approach. Look at the scale of the dollar issue in the United States, for example. They, despite any consequences of a possible inflationary surge, understand that they need to support their economy so that it does not die And I don’t quite understand why in our country absolutely normal decisions to support the economy, to increase the money supply, are perceived as if it’s something terrible"Reva says.

According to the official, many in their judgments rely on the negative experience of 1992-93, when inflation amounted to tens of thousands of percent over the year. But if we compare the scale of that issue and the current one, we can come to the conclusion that it is simply impossible to repeat the old result now. In order to achieve indicators comparable to the beginning of the 90s, Ukraine would have to launch an emission of 6 trillion hryvnias!

Now, according to economists' calculations, 300 billion hryvnias of emission will have practically no effect on inflation. And, most likely, it was this conclusion that the parliament and the Cabinet of Ministers relied on when they included this figure in the 2020 budget as a deficit.

The issue does not mean that paper money is simply printed and distributed - the National Bank simply continues to issue loans to banks. UAH 5,8 billion has already been allocated to four banks for refinancing, for 3 months at 6% per annum. Part of these funds is spent on the purchase of government bonds of the Ministry of Finance, which means covering the very "donut hole". That is, the National Bank does not give money directly, but through a network of banks. And our state obligations are growing not to the IMF and foreign investors, but to our own banks.

“When we are told that we need to restructure debts, we just need to honestly tell the people to whom exactly the debt is owed, so that there is no duality of thoughts, to exclude the possibility of guesswork, and then criticism. More than 400 billion are in the national bank, and approximately the same amount is held by our commercial banks. If we say that we will not be able to pay interest, and such conversations are underway, then you need to understand that we are not talking about foreign investors like the IMF ", - adds Andrey Reva.

According to him, now there is no likelihood that inflation will grow at a rapid pace. In fact, today there is no additional burden on the hryvnia when buying currency, which took place earlier, when banks took it abroad.

“Thus, we do not have an excess of hryvnia in our economy. All of the above explains why, with such a deficit budget, we see a very small increase in inflation. I don’t understand why the National Bank should change its policy? and we are no exception".

I agree with him Yuri Gavrilechko an expert of the "Ukrainian Thought Factory", who, in a conversation with a KlymenkoTime correspondent, spoke in the same vein:

"It will not affect our economy in any way. For this year, the budget deficit was set at almost UAH 300 billion. By the way, the real figures are about 120. Therefore, even if we print another 150 billion, we still will not go beyond the budget deficit targets. This will not lead to inflation, which we are afraid of. We will not reach this indicator, it is unrealistic. Today is December 1st. 150 billion within a month is impossible to master. For what? If you give all entrepreneurs 8 thousand hryvnias, this is a maximum of 20 billion. If one more covid fund is formed, two of these can be made. Everyone can have their positions, but I think so", Gavrilechko stressed.

Should interest rates on loans be lowered?

On the other hand, there is an opinion among economists and experts that the system of "printing money" is not suitable for our country. According to Andrei Reva, such assumptions are put forward for the most part by theorists who have read a lot of cool theoretical methods and now only talk about them. While the policy of the National Bank is dictated not by theories, but by practical needs:

"As for lending to the real sector of the economy, which the same theorists are talking about. Indeed, banks today almost do not use it. Why? Perhaps the reason is the high discount rate."

Exchange rate

No matter how experts try to predict the exchange rate, no one is able to provide reliable information. Fluctuations in the rate directly depend on whether there are free funds in the hands of those who could buy the currency on the market. And the ability of the population to carry out such operations by the end of the year is significantly declining.

“As for the exchange rate, I think even Vanga would not have predicted it. There are no free funds in the National Bank. We do not see pressure on the dollar. There is no great demand for this currency, and accordingly the exchange rate does not jump. the NBU is doing, it is precisely aimed at reaching the budget indicators of 2020"- stressed the ex-minister of social policy.

Will the issue of the hryvnia affect the tranche from the IMF

The possibility and cost of our borrowing is now influenced by many things, and, above all, the realism of the adopted budget for 2021. If, according to Reva, the head of the Ministry of Finance Sergey Marchenko agreed with the proposed draft budget and I am sure that the IMF will support it, then such a draft should be voted for. Otherwise, it will be very difficult to negotiate with "international partners". The second is the current violations in the fulfillment of the obligations assumed. First of all, we are talking about the anti-corruption infrastructure, with which strange, from the point of view of the IMF, things have been happening lately, such as the abolition of e-declaration.

"These two factors should be taken into account in the first place and laws should be adopted in an accelerated mode. The point is not whether the IMF will give 2 or 4 billion. These funds for the budget will not do the weather, given the current deficit - 9 billion dollars. The received tranche will go to the reserve of the National Bank, and not to the budget and will allow it to maintain the hryvnia exchange rate on the Interbank Currency Exchange", - summed up Reva.

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