The main reason for the hryvnia devaluation is not the war in the eastern part of Ukraine, but swollen state expenses and the large deficit, Senior Fellow at the Peterson Institute for International Economics Anders Aslund has said.
“Why is the exchange rate falling today? It’s not [because of] the war, but because state expenses are very large and the deficit is very big – 10 percent of GDP,” he told Interfax-Ukraine.
He said that state expenses in Ukraine reach 53 percent of GDP, which hinders economic development. Aslund took Lithuanian and Latvia as an example, in which the equivalent indicator is 34-36 percent of GDP, which allows the countries to be leaders in the pace of economic growth.
The expert said that military expenses in Ukraine are only 1.6% of GDP, while subsidies to the energy sector amount to 10 percent of GDP. He added that these subsidies actually go to oligarchs, especially to ‘three last names,” not disclosing them.
“How can a country that is suffering hardship allow this?” the economist said.
Aslund urged the Ukrainian authorities to liberalize prices in the energy sector to the market level with simultaneous targeted social compensation to those who need it, taking the experience of the World Bank in around 30 countries as an example. He said that the option of pegging the hryvnia exchange rate to any of the global currencies does not suit Ukraine, as its reserves are small ( from two to two and a half months of imports), while inflation is not threatening (19 percent in 2014).
“The remedy is not pegging [the exchange rate], but a reduction in the budget deficit,” he said.
As reported, at the YES forum in Kyiv Aslund said that the economic situation in Ukraine and pre-default one due to the high pace of decline of the economy, the excessive budget deficit and growing state debt, which could reach 73 percent of GDP in 2015.
