Vitaly Shapran expressed his opinion that the victory will not finance itself. Therefore, it is necessary to understand what needs to be done in the economy of 2024, what are its shortcomings to be eliminated first of all...
It's already time to take stock and analyze the challenges for the coming year. Our economy must be strong and the financial sector efficient, because victory will not finance itself. We will be able to sum up the results qualitatively when the annual statistics are released, but we can talk about the TOP 5 economic challenges for 2024 even now:
- Regulation of parity between monetary and fiscal policy. The disorder and arbitrariness of officials in this matter almost led to a national tragedy in 2023. Back in 2022, I warned that the treatment of inflation with the NBU discount rate at the level of 25% against the background of high global inflation due to the weakness of the monetary transmission mechanism in Ukraine will wash money out of the State budget. That's how it turned out. With low inflation at the level of about 5%, the state bore colossal costs for NBU deposit certificates and involved the Government in high costs for OVDP. Such a "fight" against inflation cost the budget hundreds of billions of hryvnias. And in the end, we got what we deserved - the "National Income Strategy until 2030". Here I am grateful to the Cabinet of Ministers, which adopted this document and clearly showed Ukrainians what awaits them in the event of the continuation of the policy of monetary dictation in Ukraine. It is impossible to simultaneously have inflation lower than in Hungary, the Czech Republic, Poland, Romania and other countries, and not have problems with the budget deficit. Monetary and fiscal pressures are interdependent. If the NBU spent 300 billion hryvnias on the "fight" against inflation in 2 years, then the Ministry of Finance must find a compensator for these costs, and this, as a rule, happens at the expense of tax increases. So society needs to be aware of what we want from the financial authorities? I will give a simplified example. What do we want: inflation of 15% and a simplified tax system with a tax of 5%, or inflation of 5% and a tax of up to 17%. This classic choice is complicated by war, because it adds a third factor to the choice - the demand for budget revenues from the security and defense sector. So what does society want in 2024: a) inflation of 25%, a simplified tax system with a tax of 5% and the liberated Melitopol or b) inflation of 5%, a tax of up to 17%, and a "stable" front line? For me, the choice is obvious - the demand for funds from the security sector, in particular for additional mobilization, is beyond any competition. And if we also mention the corruption of the fiscal system and the inefficiency of public spending, then the idea of monetary dictation at the expense of tax increases generally loses its appeal in the eyes of society. Although the corrupt dealers, who are close to the fiscal mafia, willingly support the policy of expensive money and low inflation. Such distortions are in their hands, because the higher the taxes, the higher their corrupt income. In 2023, there were weak attempts by the economic authorities to counter the imbalance in the public finance system, for example, they increased the income tax for banks. But this will not solve the created problem. Today, the NBU looks like a spoiled child, whose parents (the Government and OP) were so busy with the war that they did not notice how this child reached into the parents' pockets and diverted the money extracted from there to its new toy - low inflation. We must change this situation and never return to it. Inflation and devaluation should be under control, well, if they are no worse than in other countries of our region. However, priority should be given to the security and defense sector. The second priority should be a competitive tax system with a minimum of corruption, and only then - control over inflation and the exchange rate.
- Resuscitation of the credit market and interest rates. Even if the NBU lowers its discount rate, it will immediately have a positive impact on the Government's OVDP expenditures, increase budget revenues due to the reduction of NBU payments for deposit certificates to banks, and save budget expenditures on preferential credit programs. This step will also affect large borrowers of the prime segment, whose loan rate depends on the NBU discount rate. But market rates for loans are weakly correlated with the NBU rate. A whole complex of urgent reforms by the NBU is needed to improve the sensitivity of the market to changes in the value of money... Unfortunately, the analysis of the current strategy for reforming the financial sector has shown that it does not contain even half of the necessary measures. That is, the financial authorities do not have a clear understanding of what to do so that the existing credit channels really provide cheap money for the population and small businesses. Of course, we should be grateful to the Government for the complex of preferential lending programs, but it is necessary that financing at an acceptable price is based on market principles, then these preferential programs will not overburden the budget. Another aspect of the problem is the interpretation of the reduction of the NBU discount rate. Imagine yourself as a borrower in 2022: the rate is 25%, inflation is 26.6%, the real interest burden is negative - so servicing such loans is quite comfortable. And now we will find ourselves in November 2023: the interest rate is 16%, inflation is about 5%, the interest burden is 11%. Apparently, positive changes have taken place, but in reality it will become more difficult to service loans at these conditional rates. Therefore, one reform of the monetary market cannot be dispensed with, and there must also be a correction of the NBU's interest rate policy.
- Tax reform and reduction of corruption. This is the main task for 2024-2025 in the fiscal sector. I'm already tired of listening to corrupt people who talk about raising taxes, complicating the tax system for the purpose of corruption under the guise of increasing its efficiency. The simpler the system, the cheaper it is to check and the more honestly taxes are paid. In Ukraine, a whole market of optimizers has been created, in addition to VAT dealers - these are insurers, securities traders, appraisers, auditors, tax lawyers, etc. This infrastructure alone eats up 3-5 annual budgets of the DPS. The ideologues of complicating the tax system and increasing the tax burden are not much different from Putin, only he is pounding Ukraine with rockets and shaheds so that the population will quickly disperse, and these tax "corrupt reformers" are squeezing the economically active population from Ukraine to Georgia, Bulgaria and the Baltic countries , where tax systems are simpler than what we are being offered to create. War and corruption are already scaring away business from Ukraine, so we need a tax reform that takes into account competition in the region. In Ukraine, self-employed people and small businesses should be inviolable, because people employed there provide their own income and relieve the social support system from the budget.
- Work on the confiscation of assets of the Russian Federation and preparation of the economy for recovery. Ukraine should concentrate on the confiscation of the frozen assets of the Russian Federation. According to my estimates, this is approximately 500 billion dollars of sovereign assets of the Russian Federation (reserves of the Central Bank of the Russian Federation, the Federal Reserve Bank, Russian state corporations and banks, unofficial funds of various institutions) and the same amount from private individuals (Russian oligarchs, officials, etc.). It is necessary to speed up the identification of these assets by the financial monitoring bodies of our partners. It is also worth working with the EU to promote the idea of confiscating Russian assets in favor of Ukraine, in the USA this issue is already being resolved at the legislative level. We must not only find a source of financing for current needs and reconstruction, but also take away reserves from the aggressor countries, at the expense of which they could quickly recover. There are two obstacles to this strategic goal. First of all, Ukraine does not yet have a transparent infrastructure that would be responsible for reconstruction, it is still being formed. Therefore, our international partners, under the guise of a lack of transparent infrastructure with reference to corruption in Ukraine, may not be in a hurry to transfer such assets. Secondly, our economy can receive up to 50 billion dollars of external financing per year. In November 2023, all non-cash and cash hryvnias in circulation amounted to 45 billion dollars. So accepting +50 billion dollars in such a small and poorly monetized economy will be a problem. Both issues require an immediate solution, without which our partners will have every reason not to hurry with the confiscation of assets in favor of Ukraine.
- Development of transport corridors to the Baltic is one of the foundations of post-war recovery and export diversification. The presence of the Dnipro-Gdansk transport corridor will allow us to diversify our exports to 2 regions at once and fully compete with grain exports from the Russian Federation. Diversification of export channels will automatically reduce the effectiveness of the Russians' constant attacks on the south of Ukraine, and for 2-3 years will create a new investment mega-project for Poland and Ukraine with prospects for long-term earnings from transit. The events surrounding the blocking of the Polish-Ukrainian border showed that the problem of transit of Ukrainian goods through Polish territory exists, but the existence of a transport corridor partially eliminates this problem. Neither Ukraine, nor Poland, nor the EU need friendly Poland to suffocate from the influx of Ukrainian raw materials, so the parties are ready to strengthen transit positions.
Summing up, it would be possible to cite up to 20 more challenges in various branches of the economy and the financial sector. Ukraine can cope with all such challenges, the main thing is to choose the right tools and time for action.
