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.
Facts
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 is equal 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 foreign exchange reserves, which are 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 debt obligations 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 is able to protect the country from total economic bankruptcy. The mechanism of the procedure provides for the possibility of the borrower to repay the debt in an optimized manner. 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 in 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 problematic 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.
What awaits Ukraine in the future?
Experts, considering the question of whether there will be a default in Ukraine, find it difficult to give a definitive answer to it. Further development of the situation will depend solely on the decision of world states in terms of assistance. If the phenomenon takes place, the country, although it will get a chance through long rehabilitation to re-enter the world stage, but it will have to face certain difficulties. Studying the question of what default means for Ukraine, we can talk about a drop in the international rating, therefore, a massive outflow of investor capital is inevitable. World countries will cease to give loans, financing will be available only at a large percentage and in the provision of collateral. The depreciation of the currency, the fall in imports, the decline in real incomes of the population, the growth of unemployment - these are just the main things that experts do not stop talking about. A negative imprint will be imposed on the banking segment, in particular, many financial institutions will be closed, customer accounts will be blocked, and the lending process in real sectors of the economy will become more complicated . It is likely that some banks and securities market participants will withdraw all obligations, following the example of the state. Rising unemployment is inevitable. Experts, soberly assessing the current situation, note the presence of the entire list of phenomena that are more and less expressed in the country's economy today.