WEDNESDAY, JULY 18, 2018
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Ukraine consumer price rise accelerates
Journal Staff Report

KIEV, Dec. 7 Ukraines consumer prices rose faster than expected in November amid signs the economy has started to react to the governments massive borrowing this year to compensate for its budget revenue shortfall.

The prices rose 1.1% on the month in November, accelerating the pace of increase after growing 0.9% on the month in October, the State Statistics Committee reported Monday. The prices rose 11.3% over the past 11 months.

The released figures show that inflation in January through November has overshot the forecast of 9.5% that the government has made for the entire year.

The prices grow faster than expected this year as the government has been borrowing large amounts of money to finance widening budget deficit, analysts said.

President Viktor Yushchenko said the government borrowed at least 42 billion hryvnias earlier this year by selling its Treasury bills to the National Bank of Ukraine, a policy that weakens the local currency and puts upward pressure on consumer prices.

No government has received such an unprecedented level of financing through the money printing over the past 18 years, Yushchenko said addressing local officials. The hryvnia has been weakened through the rampant financing of the government.

The government resorted to massive borrowing after the economy had contracted 20.3% on the year in the first quarter, reducing budget revenue significantly.

But the government refused to scale back budget spending, instead focusing on massive borrowing from the International Monetary Fund and from the National Bank of Ukraine.

The government borrowed $10.6 billion from the IMF over the past 12 months, before the Washington-based lender had suspended the lending last month due to last of economic reforms.

This is the policy that can lead to major turbulence on the consumer price market, Yushchenko said.

Viktor Pynzenyk, who quit the post of the finance minister in February after a clash with Prime Minister Yulia Tymoshenko over budget deficit, said the policy aimed at rampant borrowing is a road to nowhere.

The budget deficit, which increased sharply, caused massive increase in borrowing, Pynzenyk said in an interview with InvestGazeta. Every second hryvnia of spending does not have a [sustainable] source of revenue.

The borrowing grows as a snowball and it will be eventually difficult to handle, Pynzenyk said.

Pynzenyk also criticized the governments recent decision to include some of the IMF money as legitimate budget revenue, a trick that makes an impression the government has managed to meet its budget revenue collection target in January through November.

The trick allowed the government to report that it raised 31.3 billion hryvnias in November alone, almost twice as much as in previous months, while in fact it had raised only 16.3 billion hryvnias.

The IMF is a credit institution and its funds have a nature of borrowing, Pynzenyk said in a statement released Monday. They can cover budget deficit, but they do not form its revenue.

Pynzenyk estimated that the government runs a hidden budget deficit of about 88 billion hryvnias, as opposed to 31 billion hryvnias that has been set officially. (nr/ez)

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Currencies (in hryvnias)
  18.07.2018 prev
USD 26.22 26.21
RUR 0.420 0.421
EUR 30.70 30.71

Stock Market
  17.07.2018 prev
PFTS 497.8 496.5
source: PFTS


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