KYIV, Feb 22 – Ukraine may further delay economic reforms without feeling pressure from the International Monetary Fund due to easy borrowing on capital markets, Executive Director of CASE Ukraine Dmytro Boyarchuk said.
However, economic problems will eventually pile up and at some point may trigger social unrest when easy money dries up and painful reforms become the only option, he said.
"The main risk is delay in critical decisions [reforms],” Boyarchuk told Interfax-Ukraine.
The IMF, which ended review of its lending program on February 12, said Ukraine will have to make more progress on economic reforms, indicating the $5 billion loan is not going to be resumed soon.
President Volodymyr Zelenskiy said Monday he expected Ukraine to receive an installment from the IMF in 2021. "We are counting on this money," Zelensky said.
The setback in talks with the IMF may force some foreign investors to flee the Ukrainian debt market, but active money printing around the world, known as quantitative easing or QE, makes some investors look for risk.
"There is no critical situation yet. There is large-scale quantitative easing in the world (trillions of U.S. dollars and euros are printed) and because of this there is a high appetite for risks. There is a lot of free money that has nowhere to invest. That is, Ukrainian debts will be bought without the IMF," he said.
"I think that until the middle of the year nothing will happen with the IMF [talks],” Boyarchuk said. “More active movement will begin if signals of a potential curtailment of quantitative easing begin. Then the government will be forced to move more actively. As long as there is no pressure, the financial situation will not pressure – the likelihood of painful reforms is quite low," Boyarchuk said.
However, this state of affairs can lead to an accumulation of problems, create the risk of a political and social explosion, when quantitative easing programs are curtailed, and the problem of financing becomes acute and there will be no political opportunity to carry out the necessary reforms, he said.
"We see that it is becoming difficult for Zelensky to pass decisions through parliament. Judicial and anti-corruption reforms are very painful for the elites," Boyarchuk said. (tl/if/ez)