Speech of Minister of Finance Nathalie Jaresko at annual press conference on Government’s work results

Dear journalists,

today we are reporting on the results of the economic block of our Government for the ending year. It was a tremendously challenging year for the Ministry of Finance. However, based on the results of our efforts, coming years should be less challenging for Ukraine.

A year ago, our main task was to stabilize the financial system of our country which was balancing on the verge of a collapse. When I was assigned to my current position, in the end of 2014 and in the beginning of 2015 Ukraine could hardly cover the basic social welfare payments from the state budget. We did not have enough funds to pay pensions and salaries. The National Bank had no reserves to keep the stable exchange rate of the Hryvnia. Its reserves were only sufficient to cover one month of critical imports. It affected the entire country and all citizens – in the winter 2014-2015 we came through another wave of a steep devaluation which was due to the lack of reserves and insecurity in our financial capacities.We also had to re-pay our substantial foreign debts, but we just did not have money for that. Our financial system got into a vicious circle of recession, and common Ukrainians had to pay for twenty years of the incorrect financial and economic policy as well as for the war. But we managed to protect our country against the financial collapse, overcome that vicious circle and create conditions enabling the Ukrainians to hope for a better future. There were strong doubts - in Ukraine as well as outside Ukraine – in our success. But we did it. What exactly we did in the ending year:• to stop the devaluation of the Hryvnia and the double-digit inflation, we desperately needed the financial support of our international partners.

It was needed to cover the deficit in our balance of payment amounting USD 40 b within the next four years; 
• we reached an agreement with the IMF – which is the main participant of the international financial coalition supporting Ukraine – and signed a loan program amounting USD 17.5 b for the next four years. This is the biggest aid program in the history of the IMF per capita of the recipient country;
• we also reached an agreement with our bilateral and multilateral partners to receive additional funding equal to USD 5.2 b; 
• the condition for the access to all mentioned credit lines is the implementation of reforms. We have already received two tranches from the IMF amounting USD 6.7 b this year as well as more than USD 3 b from our official partners USA, EU, World Bank, Canada, Germany, Japan and Norway;
• now we are working on additional agreements to receive similar support from the EBRD, EIB, Poland, Switzerland and Turkey. All of them participate in our international financial coalition;
• finally, we have completed the restructuring of our foreign debt and reduced the amount which Ukraine has to pay to its creditors within the next three years by USD 15.2 b. This includes USD 3 b which we won’t have to pay at all; USD 8.5 b we will pay in three years only, after 2018. Further payments amounting USD 2.8 b we could postpone due to the reprofiling of the debts of the state-owned Oshchadbank and Ukreximbank. We have three years to return our country to economic growth and restore the prosperity of our citizens. Without this debt restructuring we would have had to announce a full-scale default on our obligations cutting our country from international capital markets for years and leaving Ukraine without any hopes for economic recovery for a long time.But sorting out the problem with the national balance of payments weighing USD 40 b was just one of the elements necessary to secure financial stability. Another part of this challenge was to reduce the deficit of the state budget of Ukraine, since a higher budget deficits means a higher inflation and devaluation risk as well as a higher need for new loans and a higher probability of further economic calamities. I would like to mention a couple of figures for your understanding. Just a year ago, in 2014, the total deficit of the consolidated budget, including Naftogaz, amounted 10.1% of the GDP. That means that we had to close that gap by making more debts. These debts result in more pressure on coming generations by accruing ever higher interest rates on state loans every year. In 2006 we had to spend 0.5% of the GDP to serve our debt, in2015 we needed almost 5% of the GDP to re-pay our loans.We have started an extremely important process of deficit reduction. Next year we will reduce the budget deficit to 3.7% of the GDP; the deficit of Naftogaz which is usually covered by making further public debts and cost us UAH b in 2014 will be reduced to zero in 2016. We have also embarked a very important step by reducing public expenditure which we equal to approximately 46% of the GDP in 2014. Ukraine needs it for several reasons. First, we can’t afford public spending at this scale anymore, since we can only finance it with new loans. Secondly, such a volume of public spending expels private investments from the economy. Consistent efforts of the Ministry of Finance and the Government should result in reducing public spending to 41% of the GDP in the state budget for 2016. I also want to point out that we can reduce public spending while providing sufficient funding for all public needs:1) we are timely financing all budget lines and have no pending salaries or pensions to pay;
2) we have implemented the biggest defense budget in the history of Ukraine equal to 5% of the GDP;
3) we have enhanced social protection for our citizens. As a part of it, we provide subsidies on time – in the current year we are spending UAH 24.4 b for this compensating higher utility rates for more than 4 m households in Ukraine.One more extremely important task for us was to bring public decision-making closer to local communities. To do this, we have completed a successful fiscal decentralization delegating a part of powers and financial resources to municipal self-government bodies, since communities have a better idea than the central government what motorway has to be repaired first or what town district needs a new kindergarten more than the others. The real financial resources of local communities (consolidated) has already increased by 42.5% which is equal to UAH 26.8 b.However, stabilization and recovery of public finance are only a part of the task I set to myself when taking the position of the Minister of Finance a year ago.

My second, and most important, target was and is to create conditions for a real and fast economic growth. We have done a lot already. Jointly with the National Bank we are working to strengthen the banking system. With this purpose we have elaborated and adopted legislation prohibiting entities related to banks to carry out transactions which can weaken the respective banks. We have improved the operation of the Deposit Guarantee Fund with new regulations. A while ago we submitted draft laws to the Parliament meant to help banks sort out bad debts and return to active loan distribution. We have also proposed a practical solution for the restructuring of the hard-currency mortgage loans taken by citizens.Several other important steps we have to coordinate with the Government and the Parliament. Of course, I mean the tax reform whose amended compromised draft I presented yesterday at the meeting of the National Council for Reforms. Finally, target number four for the Ministry of Finance is a crackdown on corruption and transparent use of public funds. I will list just the most outstanding achievements of the Minister of Finance in this area: 
• implementation of electronic procurement at the Ministry of Finance;
• launch of the portal E-data to trace public spending transactions;
• elaboration and roll-out of the institutional reform of the State Fiscal Service including new electronic services, staff reduction by 30% at the State Fiscal Service till the end of this year, dismissal of almost all senior officials and hiring new skilled employees in open contests and in line with international best practices;
• elaboration of a structural corporate governance reform at state-owned banks;
• start of the restructuring of the State financial inspection.In any country of the world the Ministry of Finance is in charge for the most complicated and most important part of the job in terms of economic development. Healthy public finance provide opportunities for a fast economic growth, predictable inflation and exchange rate which are crucial for investments and employment in the country. Stable balance of payments, prudent budget spending and deficit, healthy banking system and fight against corruption – we are creating a strong basis for financial and economic stability. Thus, we are returning back on track of real economic growth, investments and improvement of the quality of life for every citizen of Ukraine.