Illarionov: default in Ukraine is almost inevitable. It will come in late January, maximum in February 2015
2 January, 23.03
Ukraine entered the New 2015 Year with the new budget, which the Verkhovna Rada was considering for two days in a row and approved it at half past four in the morning of December 29, 2014. The main financial document of the country caused a lot of criticism. In particular, the former finance minister and current MP from the faction "Bloc Poroshenko" Viktor Pynzenyk said that the budget deficit-2015 will not be 64 billion hryvnas as the Cabinet of Ministers assures, but 200 billion.
Default in Ukraine is practically inevitable, said in an interview with "GORDON" Russian economist and senior fellow at the Washington-based Cato Institute, a former adviser to President Vladimir Putin, Andrei Illarionov. The expert notes that now the only question is wether there be a default in late January or February 2015. However, according to Illarionov, there is a slight chance to avoid the financial, social and political collapse in Ukraine.
If the percentage of government costs in 2015 will be 67% of GDP - it’s a suicide for Ukraine
- After the adoption of state budget for the 2015 by the Verkhovna Rada the message appeared in your "Live Journal": "As Ukrainians has been said repeatedly the default is practicaly inevitable now." So practicaly or inevitable?
- Practically inevitable. There are, however, negligible chance that Ukraine will be able to avoid a default, but to make that happen the Cabinet of Ministers must radically revise and Verkhovna Rada readopt the Budget 2015 within three to four weeks. They should significantly reduce government spendings, eliminate the budget deficit, to start reforms for "Naftogaz "and for the pension system.
- Judging by the statements of the Cabinet, government spendings are rigidly cut, a new tax system is established, in some cases even economic reforms are reviewed
- The new Ukrainian budget does have attempts of reforms. But according to the data given by Victor Pynzenyk, public expenditure will be two-thirds of the annual gross domestic product (GDP). This means an increase in the percentage of government expenditure in GDP by 13-14 percentage points compared to the year 2014, when, according to the International Monetary Fund (IMF), they were 53% of GDP.
- But there are objective reasons to increase the share of government spending: there is a war in Ukraine for almost a year.
- However, if the Pynzenyk’s assessment is valid and the new budget does provide an increase in the share of government spending in GDP from 53% to 67%, it is, quite frankly, the suicide of the Ukrainian state.