A “critical stage of the crisis we have been”: interview with Finance Minister Sergei Marchenko

The Finance Minister about the situation with government bonds, relationships with the national Bank and the implementation of the budget

The Ministry of Finance today, we can say, is at the forefront of the fight against coronariana no less than doctors. After all, it bears the responsibility for everything to do with money: the budget income and payments, cooperation with international financial donors, taxes, etc. On him I hope he is waiting for “recipes” save the economy and news (preferably good), although not always a believer, and often abused. The website “Today” talked to the man who decided to lead the Ministry of Finance of Ukraine in the midst of crisis. Thursday, July 9, just marks one hundred days since the Department was headed by Sergey Marchenko.


– Sergei Mikhailovich, according to the biography, you are not the first times come in the Ministry of Finance. First time came here almost immediately after the master’s degree. Where, as written, was a scholar of the President of Ukraine.

– For the fourth time I find myself in the Ministry of Finance. My first position was at the Department of public debt of the Ministry of Finance in 2002. Then returned several times, each time growing professionally. He became Deputy Minister, and now Minister. So you could say I’m not a random person. Me in this area, many know many good communication. With some colleagues started back in 2002 and they are still working in the Ministry of Finance.

I can tell you that people who are in the Ministry of Finance, rarely go out. Here is quite comfortable and a decent professional level. Usually work to stay here for a long time. Although this often depends on leadership… I’ve always been happy to work here. I have experience in different departments. In Tax administration, the presidential Administration, the Secretariat of the Cabinet of Ministers, the Verkhovna Rada. But I was always drawn to the Ministry of Finance. It’s probably mine. I admit that in the shower sometimes had the thought that maybe I could return here as a Minister. But however told myself, “well, is it really…”.


– With whom of the former Ministers of Finance was the most comfortable to work?

– Directly with the head of the Department I worked when he was Deputy Finance Minister Alexander danyluk. Mean direct submission. I was impressed by his style of work, from the point of view of the organization processes and delegation of authority. When I first came to the Ministry, it was headed by Igor jusko. I certainly didn’t personally know, but also felt the professionalism of the team.

– What experiences have you learned from your work in the presidential Administration?

– Interesting question… This work made me understand the scale of the country in which we live. And solutions what level it requires. The Ministry of Finance had a fairly narrow profile, but often I replaced danyluk. He gave me the opportunity to grow professionally.


In the Office of the President responsible for the economic bloc. This required a global vision of the processes in the economy, energy, Finance, agriculture, mejdunarodnie. There before me was a complete picture of the country, a daily range of its problems and challenges. It was interesting from the point of view of global positioning and understanding of their participation in these processes. It was a good experience from the point of view of self-development.

Let’s go back a little bit ago. You defended her thesis, and on the subject of “Public Eurobond borrowings of Ukraine in the international capital market”. That’s what you are, in fact, now has to deal with. What were the main conclusions of your thesis? And did she tell you now?

– You know what positive work on such projects? You learn to systematize, to synthesize, to draw conclusions and suggestions. This is, perhaps, most importantly, gave me scientific work. Then I left this activity for the future. Understand what you or doing science, or real processes. This practice gives the public service. I wanted to do something more applied, so from 2009 I am not in science.

However, the scientific experience helps me in expert communications. For example, with the specialists of the Department of public debt and borrowing of the Ministry of Finance. There are all – pros, deeply understand the essence of the subject. And as I passed your way expert, received theoretical knowledge and understanding of the processes, I just in communication and the understanding of many processes. I think that got a fairly high level of expertise in these matters.

– Will you somehow change the policy on government bonds?


– We try to build a situation where you can continue to borrow on market terms, reducing the rate of return. It is important to show that the state is an efficient borrower is ready to borrow on favorable market conditions.

Our key task is to create a market that would in any period of time provided the opportunity to borrow.

The question is not whether to close down in own income. All successful countries owe. This is normal. The task of Ukraine is to be an effective borrower. To decrease the cost of borrowing, the yield on government bonds. The price of our securities has always been high. Credit risks of the country was reduced, credit ratings increased.

We have set an ambitious goal in our Strategy to 2023, to obtain credit rating to investment grade. Tools for macro stability, economic growth, welfare of citizens and the solvency, willingness to timely fulfill debt obligations. This is very important. Lenders look first to the payment integrity of the debtor country.

If we don’t set ourselves such goals, we will never move forward.

– Do You feel that the policy of the former leaders of the Ministry of Finance relative to government bonds was the right one? In particular, there have been accusations that due to the influx of large sums from non-residents of the hryvnia has strengthened by more than planned, which reduced revenues.

But the question is, how consistent fiscal policy of the Ministry of Finance with the monetary and exchange rate policy of the national Bank. The consequence of imbalances became economically unjustified, in my opinion, the strengthening of the hryvnia in 2019. The reason is that different branches of the national Bank, the government – to solve own problems, not always coordinating their actions.

– And now, with your arrival, the situation changed?

Now there is such a demand for our tools from non-residents. We work mainly with local banks. So the question is now less relevant.

In the economic crisis we see the decline of national economies, equity markets, leaving investors in the risk-free assets (gold, bonds, US Treasury, Germany, etc.). As a result, the country is sensitive to risk, such as Ukraine lost part of portfolio investors.

But we are positively different from the rest of the world. We do not have special needs in these loans. So we say, okay, just such a situation, we will manage on our own, we have enough resources.

Whether we use this tool in the future? Yes, if there is demand from non-residents. You understand that this will allow us to reduce the profitability of financial instruments. Of course, these processes need to be correctly moderated. The main objective is to have an effective secondary market.

Because the main risk is not that we sold bonds and, relatively speaking, I forgot about them for a few years. The question arises when non-residents start to implement them. The market must be sufficiently liquid in order to avoid sharp jumps.

– Since we are talking about interaction with the national Bank, can not help but ask: how, in your opinion, can affect the resignation of Yakov Smoliy on the economic situation in the country?

– I spent a week trying to calm everyone down and everyone saying “don’t panic!”. It has become a meme (smiles).

There is no reason for concern about the financial stability in Ukraine. Staffing decisions and the change of officials does not negate the achieved macroeconomic stability. We have carried out the budget. We have passed the peak of the situation. So I don’t see any reason to worry.

– Who can become the new head of the National Bank of Ukraine?

– First of all, it should be someone with lots of experience – banker, macroeconomist. He should have diplomatic talent. It is important that this man had the confidence of the banking system and it is perceived by our international partners and investors.

I hope that this professional application will be found soon, it will support the Parliament and then we will start cooperation with the new head of the national Bank.

– And what situation with the budget? Today the deficit is much greater than the amount which Ukraine will receive from the IMF and other donors. How to cover the deficit?

– There are external loans. In addition to the IMF, the EC. We have received this year, a tranche of 500 million euros and planned a new programme to 1.2 billion euros. In General, the volume of macroeconomic assistance will amount to about 7 billion euros. Expected funds from the world Bank – roughly $ 1 billion. There is an internal demand for our bonds, we were talking about. There are other borrowing smaller amounts. This is enough to provide a stable situation until the end of the year.

– It’s enough, and foreign debts to pay, and the budget deficit to cover?

– First settle the debts. In this case an absolute priority – time to pay pensions and public sector wages, promptly pay the refund of VAT to fulfill all social obligations.

We could provide doctors with personal protection equipment in hospitals, which are struggling with COVID-19, make payments to doctors. Recently decided to raise salaries to doctors.

– I want to ask you one more question about the scale of the crisis. In previous similar periods of economic decline in Ukraine was, as a rule, deeper than the world average and than in the countries with which we compare ourselves. Do you think that this time the “rule” is violated?

– There is reason to believe, that we come out of the crisis. The IMF gives us an 8.2% drop in GDP, had made 7,7%. We believe that the 4.8% is the real figure. View the results of the second quarter. Heavy months were April and may. In June, the start of economic processes.

There is no reason to believe that the fall of the economy we will have more than in developed countries. There are several reasons. The main problem, which was created CОVID-19, is a broken economic chains. But Ukraine is not highly integrated in the most affected chains. But the markets, our export products are preserved. Mean grain and food. Falling prices for iron ore and metal is not as strong as oil and gas. So for us, from the point of view of external positions, the situation is not as vulnerable as other countries. Believe we will successfully emerge from this difficult situation.

Today there is no reason to expect falling prices of domestic exports. See clear signals for the recovery of the US economy, European economies, and the resumption of production. There are orders for deliveries of metal products. Preserved the demand for chemical industry products, medicines. And for food and grain demand has always been. During a pandemic it was higher than before. We are one of the top countries that provide the world with food. Believe me, we have enough strength to recover and become stronger.

Of course, many lost small and medium businesses. But the statistics suggests that the numbers of registering a new FOP has already reached pre-crisis level. Electricity consumption in the last two decades indicates the resumption of industrial production. There is reason to believe that the most critical stage of the crisis we went through. They are now recovering.

The same thing we see on the budget. We have completed the budget for may, June. Expect that will until the end of the year.

Speaking about the implementation of the budget, now you can often hear accusations that the Finance Ministry had first reduced the rates of income tax and customs, and now reports on the implementation or fulfillment. But if you compare with the old indicative, it is obvious that there will be a failure of income.

– First, the Ministry of Finance always starts from the figures, which are incorporated in the state budget. A list of income from may until the end of 2020 comes from the fact that in April the Verkhovna Rada has introduced changes to the state budget, which annual income is reduced by 120 billion compared that was laid last year. For this purpose there were objective reasons.

Second, in this case, you can’t just “mechanically” to compare absolute figures of income a year. First, we need to pay attention to grew whether the economy in that period of time in which to pay taxes, or Vice versa, was the fall. It is worth mentioning that the second quarter of 2019, according to the state statistics service, was a record growth rate of real GDP is 4.7%. Such rates not seen since 2012. The industry grew in April 2019 5.2%.

And now we take the data for the second quarter of 2020. Due to the unprecedented measures to restrict economic activities in the conditions of the quarantine, of course, was the recession. The index of industrial production, for example, in April 2020 fell 16.2% in may to 12.2%. Decreased electricity consumption by 7.8%, indicating a decrease in business activity. And Ukraine is not unique in this – coronaries had a negative impact on the entire global economy. For example, the forecast decline in GDP to the end of the year in the United States and 5.3%, UK 9%, France at 9.9%, Italy – 10.8 percent, Spain 11 percent. Or another indicator – the forecast of the budgetary balance. In the US and the UK – 15,9%, Italy 12%, France 11%, Poland – by 9.4%.

Also, let’s go back to the situation of January-April, in order to understand what problem we inherited. What were our guidelines: January-April 2020 were collected revenue to UAH 44.2 billion less than planned. And this at a time when the country was vital to fill the budget, when we needed funds to ensure financial stability, to pay pensions, salaries to doctors and teachers, maintain an efficient army…

Now, thanks to the implementation of the income tax and customs, we began to close this “hole” in 44 billion We need to catch up on, to be able to fully Fund all priority expenses. Already seeing positive trends in June were the first since the beginning of year on 100% complete plans for the customs revenues, and tax even exceeded the plan and in may and June. I also hope to run painting before the end of the year. No delays in payment of pensions and salaries.

All this, in particular, thanks to the coordinated work of the fiscal authorities. We are already seeing the results of the struggle against shadow schemes for payment of VAT and fictitious tax credit. If you reduce the supply of goods and services may-June 2020 by 20% compared to the same period last year, VAT paid 4.5% more than the same period last year. In may-June 2020 – 38.8 billion UAH in may-June 2019 – 37.1 billion

Tax efficiency VAT increased from 2.65% in April this year to 3.14% in may and almost to 3.5% in June. This is the highest figure for the half year. In absolute terms, it is 9.1 billion UAH of additional income tax compared to last year.

Read more in the coming days.

Meanwhile, see how much the Ukrainians owe the government for communal: