Global economic collapse is inevitable: what awaits Ukraine

The war in the Persian Gulf continues - and its consequences have long since extended beyond the region. In a new broadcast by Yuriy Romanenko, economist and former advisor to the President of Ukraine Oleg Ustenko analyzes how the Iranian crisis is reshaping the global financial architecture - and what this means specifically for Ukraine.

Brent crude is trading near the $113 per barrel mark and continues to crawl upward. Talk of unfreezing U.S. strategic reserves remains political rhetoric: Trump has no incentive to drive prices down before the midterm elections, and the market understands this perfectly. Ustenko explains why the initial "scenario for a few weeks" failed long ago - and why what seemed like a pessimistic forecast has become the baseline.

But oil is only the tip of the iceberg. The Persian Gulf is the world's largest supplier of fertilizers. Their shortage has already been triggered, and a chain of consequences is inevitable: falling yields, rising food prices, the cutting off of the poorest countries from the market - and as a result, a new Arab Spring, new waves of migration, and the strengthening of right-wing parties in Europe.

In parallel, a debt noose is tightening around the necks of the major economies: the U.S. is paying 4% on its debts, the UK - already 5%. Ustenko puts the probability of a full-scale global crisis at above 50%.

On the Ukrainian track: the Hungarian block of a 90 billion euro loan, the threat of a cash gap as early as April, the Norwegian bridge financing scheme - and harsh criticism of the fuel cashback idea as a political mistake in conditions where the only correct strategy is to cut spending, not increase it.

Introduction. The Iranian Crisis and Its Mounting Consequences

Yuriy Romanenko: Hello everyone, friends. Surfers, loafers, our favorite deviants, honey badgers. Welcome to the broadcasts. As you can see, I'm back and we're starting the creative workdays. There will be many different interesting broadcasts. And we're starting with Oleg Ustenko because now the economy is on everyone's lips. The war with Iran has brought a lot of unpleasant nuances. And so we'll be talking about this, specifically about the state of the world economy and how it will correspond with our state of the Ukrainian economy. And Oleg, good evening.

Oleg Ustenko: Yes, good evening.

Yuriy Romanenko: Where shall we start? Last time we did a broadcast, we also touched on the topic of the impact of this whole Iranian situation on the global economy. Back then it was still unclear whether oil prices would go up or not. That is, everyone was waiting for a shock. The initial "autoshock," as they say, turned out to be not quite as corresponding to the alarmist initial expectations, but as the war drags on - and it is dragging on - and Trump's plans regarding a ground operation that might last a few weeks... we understand where "a few weeks" goes. Our situation with Russia tells us: where there are a few weeks, there are a few months, and with vats - a few years, especially in such a complex region as the Persian Gulf.

And the numbers are on the board, so to speak, because prices for diesel in Europe, in Ukraine, and for petroleum products in general have climbed. Everyone is whispering about what to do, what to do, because everyone knew about oil and gas from the Persian Gulf, but practically no one paid attention to the fact that a large share of fertilizers is supplied from there, which in the context of the sowing season turned out to be - always turn out to be - extremely in demand. And now all of this has also come into question. Consequently, the issue of food prices and inflationary expectations in this regard.

That is, in principle, the world has found itself in a more than difficult state due to this war, because the situation is developing towards the worse rather than the better. And, in general, everyone has such anxious expectations, especially those regions and those countries that depend on oil, gas, and food. And that's all countries in the world. It's just that some are better provided for, others less so, or not at all. And, strictly speaking, this situation hits us in several directions at once, as I think. So, let's start with your assessment of what is happening now with the world economy in the context of this Iranian pressure, let's call it that. And what main trends do you see now?

Oil at $113: Why "A Few Weeks" Became the Baseline Scenario

Oleg Ustenko: I would say this: if you look at the reaction to what is happening now in the market, there are several moments. First, indeed, oil prices, as we predicted, continue to crawl up. The price of oil at this current moment as we speak is 113 dollars per barrel of Brent crude. That's a lot. It's still lower than March 2022. Just as a reminder, in March 2022, when the war against us began, the price jumped to 120 dollars. Now it's around 113, but these oil prices are constantly feverish now. Sometimes they are 102, then 103, then 117, then they get very, very close to 120. In short, it's a situation of constant fluctuation.

The difference from March '22 is colossal because in March '22 it was unclear, first of all, what would happen to the global economy. And supposedly oil existed; oil was there. And back then, no one had yet imposed oil sanctions against Russia in March '22. And yet prices were climbing because there was an extremely negative expectation. Now, they are constantly trying to push this negative expectation back in the White House with their statements - either "don't be afraid, we will unfreeze the strategic reserves we have," or the G7 meets and says that very soon they will unfreeze them.

Back then it was clear, again, in our last broadcast it was clear that this would not happen because what is the point for the Trump administration to take and unfreeze these prices now - or rather, unfreeze their strategic reserves. He needs to drive down oil prices primarily at home. Because, whatever they say about Americans, they judge by the relative effectiveness or ineffectiveness of the economic policy being carried out. It's about how much it costs to fill up their car's tank. If a car tank now costs 30-40%, or even 50% more in some states than it did before the Persian crisis, then the attitude towards the economic effectiveness of the current administration's economic policy will be extremely negative.

And there aren't that many reserves. And if they unfreeze the reserves, it will be enough to drive the price down for a while. But it will be enough to drive the price down for this month, say. Well, at most for a month and a half. That's the maximum that can be expected if there is a large release of oil from strategic reserves all at once. And even then, it's not a fact that the market will sharply go down. It will, of course, calibrate to a slightly lower state, but imagine any market player who owns a refinery and who will have to buy oil now, knowing that in 4-5 weeks oil will crawl up again because the strategic reserve released onto the market will be consumed. It's clear that he won't roll back his prices, as many, including in the White House, might want or imagine. That won't happen.

Plus, this definitely won't happen now because, again, if you operate only with this kind of strategic reserve, you need to take a window for maneuver - that's 2 weeks before their midterm elections. And a period of, say, 2 weeks after the elections, or 3 weeks before the elections and a week after the elections. That is, when it would be logical to do it. From any other point of view, it's completely illogical. The market understands this.

The situation is different now because the possibility of oil movement through the Persian Gulf has been cut. These are serious volumes that are not reaching the market, and it seems they won't be reaching it in the near future. The talk about everything ending in 4-5 weeks or 3-4 weeks didn't work. That's also obvious because those 3-4 weeks have already passed.

It turns out there is a scenario that at the very beginning seemed extremely pessimistic, which Politico wrote about when it said that, well, one could expect the crisis to last until the fall of the current year. Now this no longer seems like some kind of catastrophic scenario. It seems that this may well move into the category of a baseline scenario. If this moves into the baseline scenario, it means we will see a slow increase in the price of oil for a long period of time. Now it's 113 dollars per barrel, so very soon we will see a price of 120 dollars. It is not ruled out that if the situation continues, the market must calibrate. But if the situation worsens - and it is prone to worsening now, not to resolution, but to worsening now - well then we will see a price range much worse compared to the one we see now.

It's clear that all these stories about "let's throw additional oil onto the market" are fine, but the question is where to get this additional oil? I understand that everything that is free and can be thrown onto the market by Venezuela is already being thrown. We saw that Iraq is starting to partially supply its oil to the global market. Supposedly Iran could give this oil to some of its partners, but it seems it's not really giving it to its partners. And overall, a huge amount of oil that should have gone to the market is stuck, and it isn't going, which means the price will continue to increase.

The Debt Noose: Three Magic Numbers - 3%, 4%, and 5%

Oleg Ustenko: And what does this price increase mean? What does the market think about all this? The market, if you look at the U.S. stock market, is supposedly in a state - again, it jumps - 2 days in the red zone, 2 days in the green zone, then one day in the red, one day in the green, then again like that. And this has been going on since the start of this crisis. In fairness, it must be said that even the price rollback we see - on the stock indices - is, of course, strategically going down, but all stock market indicators are still almost 50% higher than, say, the beginning of 2024. Even for 2025, it's still higher than the beginning of 2025. That is, the market hasn't yet rolled back past the limit it might have been at the start of 2025. Everyone is panicking.

If you look at gold, theoretically we should have expected a price increase in gold. We spoke last time that a very important entry point for us into such a crisis from which there is no exit is a gold price above 5200 per troy ounce, and now we see the price at around 4500. And this is despite the fact that before it rose almost to five - anyway, at the start of the crisis to 5000, and now it's around 4500. That is, it rolled back, almost by 10% for gold. There are many explanations for what happened with gold, because some countries suddenly started dumping the gold they had on hand. Но dumping is only possible if you believe the crisis will end quickly. You dump it to lock in your profit. Again, for many central banks, this is practically reading tea leaves.

What draws a lot of attention is the sharp jump in the cost of debt for the main global emission centers. I'll give three magic numbers - 3, 4, and 5; what they mean. This is because now, how much it costs to create debt for the main global emission centers. Europe has risen in the cost of its debt to 3%. That is, if Europeans want - and they do want - to enter the global capital borrowing markets. They want to do this because many of them have government budget deficits. They must be prepared to pay, say, on their ten-year bonds somewhere around 3% per annum.

3% per annum. Just for understanding - the principal of the euros we want to borrow from the Europeans, it's for... they have to get them somewhere; they have to go to the global market and borrow that money for themselves. How will they pay it back? By selling their special debt notes, which cost even slightly above 3%. That is, they must be prepared to pay around 2.7 billion euros annually just to pass this loan to us. And the question is, who will eventually settle this? Right now it seems it's not us. Again, the external contour is unstable, but Europeans are taking on an additional debt service of 2.7 billion euros annually. Just for a second: if this debt could previously be made at 2 billion a year to pay for the same debt, now it's 2.7 - that's a significant difference.

If you look at other countries, especially the hero of the conflict - the United States of America... the States have to pay on their debts around 4% per annum. And notice that the States are the main emission center of the world. And notice that the United States of America has on hand around... how much? Even slightly higher. Say, 35 trillion dollars of debt. 35 trillion dollars of debt. This means that around 4.5% of their GDP must go just to servicing the debts they have already accumulated. 4.5% must go just to servicing their debt. This is what is called an unsustainable level of public finances.

If you look at the main victim here in this debt race, it's Great Britain. They currently must be prepared to pay around 5% for debt servicing. That's already very serious. Just for understanding - we made debts ourselves in 2021 before the war and even in January '22, Ukraine borrowed funds on the global financial market at 4.5%. And here Great Britain - a successful European country - at 5%. 5% is worse than what we borrowed a few months before the war began. What does this say? It says that the debt noose has really tightened around the necks of at least two serious players - Great Britain and the United States of America.

One could, of course, look at Japan, but things are bad there, though not so terrible. In Japan, the debt cost is approximately 2%, but what's scary in Japan is that their debt-to-GDP is 220%. So just as the States have to pay 4.5% of GDP for their debt service given how much it costs to service their debt, the Japanese - because they have such a large debt that is twice as large relative to GDP as the U.S. debt - pay the same 4.5% for debt service. And approximately the same amount, even slightly more, must be paid by Great Britain.

And this tightened debt noose shows - it speaks to the fact that, of course, the ideal way out of the situation would be if the war ended right now. In general, if all wars stop, including our war. And then the economy would somehow suddenly go on a strong upswing. In that case, these three large centers - Europe, the States, and Great Britain, and Japan too - should show some kind of growth at a level of at least around 4% a year. Well, it's not difficult to justify this arithmetically or mathematically, but it's clear that in practice this is a challenge that can hardly be carried out in the current paradigm. In the current paradigm, I see no prospects for making this leap in growth for these main emission centers.

What's the way out? The way out is to try to resolve the geopolitical situation so that the geoeconomic map changes, or to crank up the geoeconomic situation so as to then influence the geopolitical map. For them, this is a question of their own economic survival. It's clear that a year or two seems relatively stable for them if you look only at debt policy. Но in a slightly longer perspective, this is an insoluble task in the current paradigm.

The Stock Market, Gold, and Where the Money Goes

Oleg Ustenko: It turns out that against this background, it's not just us who see this; the market sees it too. The market doesn't want to buy these debt notes from these main emission centers because it believes the risks of buying these debt notes have increased sharply. Therefore, we currently see and should see a perturbation of funds from some assets to others. But what do we see for a fact? We see that they don't really want to invest debt notes into debts. The stock market - it seems money is being pulled out of there, otherwise we wouldn't see the market sagging. We should have seen something happening with gold. It should have gone up, but gold isn't going up.

The question arises, of course: where does the money go that is taken out of both gold and the money taken out of the stock market? And these bad signals we see from large investment groups, when some investors would like to take their money - we are talking about tens, hundreds of billions of dollars - it's locking up. That is, we can't fully piece it together. If something were going actively up... only the price of oil is going actively up, well, and the prices of some commodities.

The Probability of a Global Crisis - Already Above 50%

Oleg Ustenko: But if we see this kind of situation, when an economic leap will clearly be in question, when the United States of America seems to have started on a track repeating the Vietnam events, ready to start a ground operation on the one hand, and on the other hand economic problems start to emerge from every side possible in the States themselves. They are going beyond the contour, and we see this too.

Therefore, I think the situation will develop in such a way that we should very soon see additional reviews related to the global economy that will indicate a global cooling. That is, a global cooling - not a minor one, but specifically a global cooling. We should see additional reports about global inflation cranking up because oil prices, which are increasing, will clearly pull up transport costs. And by pulling up transport costs, we will see an increase in production costs. An increase in production costs will lead to a price increase. A price increase is nothing other than inflation. Bad.

It's only good from the point of view that when such global economic upheavals and geopolitical upheavals occur, it can create a base for a new technological breakthrough, when it seems you can't rely on cheap oil, and therefore on cheap diesel or gasoline. What to do with these internal combustion engines? Switch to electricity, but with electricity, problems can also periodically arise. In this connection, by the way, Ursula von der Leyen's statement about the mistake we made by giving up nuclear energy seems caricature-like but still relevant, along with everything else on the list that might happen.

The situation is extremely, extremely unstable. I think this instability will eventually... the abscess that exists, it's all fermenting and fermenting in this vessel. The vessel seems to be still corked, but there are already holes in this vessel. It's breaking through somehow. It must burst. There must be some large breach from where everything will go and a serious global economic crisis will begin. This could go in different directions. What is called a bank run could begin - a flight of deposits in some large serious banks. Possible upheavals related to investment companies simply lowering their limits on the disbursement of funds that investors want to pull out of investment funds. This could also influence the development of a negative situation. Further upheavals related to oil, oil moving into a very pessimistic scenario, and a fast move of oil into a pessimistic scenario. All this could hit all players together extremely negatively, primarily the most basic and large players. And after that, everything related to what is called a global economic crisis will follow.

I don't see anything that could right now politically or geoeconomically act as a serious stopgap and say there won't be a crisis. No, I still believe that the scenario of global crisis development, the probability of global crisis development, this scenario already exceeds 50%. It's clear that it's still probabilistic, but very high, a very high probability that a crisis could begin.

And then there's Trump's statements like today. "Maybe we'll occupy Kharkha island, maybe not. We have many options. It would mean we'd have to stay there for some time. I don't think they have any defense. We can easily capture it." That is, in principle, this speaks to some, to put it mildly, lack of understanding of the realities they might face there, because the Iranians have repeatedly shown that they have created the appropriate infrastructure.

And most importantly, they won't hit back at the Gulf countries, at the Gulf monarchies. And that's the Achilles' heel of this whole situation. Regardless of whether they take Kharkha island or not, whether they force Iran into obedience or not... this is already, firstly, obvious. Secondly, Iran has found compensation for the loss it suffers after its oil supplies were blocked. Although some of the tankers are passing along its side. So, the Iranians are now demanding 2 million dollars for the passage of every oil tanker that goes through. Accordingly, they can - given that 100, 140-150 tankers passed through there a day, I think - well, count it, you already have 300 a day for the passage of these ships - and we are talking about billions a month, right? That is, they can actually compensate for some part of their losses this way. And, clearly, the Americans will play accordingly there and have already warned that this is considered wrong and unfair, but this whole situation has already gone so far that talking about a "wrong" or "unfair" approach in these conditions is laughable.

Europe Under Pressure: Food, Inflation, and the Rise of the Right

Yuriy Romanenko: Therefore, I agree with you that the threat of a crisis is definitely over 50%. And generally, Trump's actions only further develop this logic into a real manifestation of this crisis. Now, Europe, it seems to me, is currently in horror of all this because it has the most disproportion among such large players, perhaps. Firstly, dependence on markets - on access to the oil and gas markets. Secondly, dependence on food, although I think Europe produces a lot of food itself given the policy of subsidizing farmers. Но food inflation will start to develop worldwide and, accordingly, will reflect on domestic markets despite their regulation of everything. So.

But things will start breaking just like here. Remember how much blueberries cost? My wife and I were just talking today. We produce blueberries on a large scale, but why are they so expensive? Insanely expensive. Probably because we export everything to the global market and not much stays on the domestic one. And I think this food price issue for Ukraine will be an immediate problem, even though we produce a lot of food.

Oleg Ustenko: No, clearly, that's the flip side of our integration into the world economy. When you are integrated into the world economy, when you have the opportunity to sell your goods on the world market for, say, 100 hryvnias, while the internal price could be 50 hryvnias, you won't sell at 50 hryvnias because you have the alternative to export and sell there. And you will do that because that's how the world market is structured.

Regarding Europe... well, we are joining the European Union, but we are also members of the World Trade Organization. Export restrictions are prohibited there. That is, you don't have the right to set an export duty just because you want to fill your domestic market. That's it, an unworkable scheme. Therefore, either the internal price is exactly the same as the global one, minus transport costs, or you don't play by these rules at all.

Yuriy Romanenko: So wait, wait, how did Russia work then with oil? It set that special oil duty which filled all those special funds. It's also a member of the WTO.

Oleg Ustenko: It's a member of the WTO and had no right to do that. And that duty - there are some restrictions specifically related to oil, it goes... energy goods are regulated a bit differently. But for all other goods, you don't have the right to do that. Not for metals, not for agriculture, not for agrarian products, not for anything. You don't have the right to limit export opportunities. Of course, this is possible in some individual cases for a very limited amount of time, but the basic rules of the WTO are that you don't have the right to do this. They monitor this just as they monitor that you don't have the right to use child labor or prison labor. These are simply the three biggest taboos within the WTO.

And it's clear that there are identical taboos in the European Union. That is, a country that joins the European Union plays by the same rules that exist in the European Union. Therefore, these recent disputes regarding our agrarians and the possibilities of what to export and what not to export and the introduction of export duties - that's an unworkable system, simply unworkable. Either it's this way, or not at all. You can't allow yourself more than you are willing to allow everyone else. So, if you want market access, then that's the way. Access for other goods depends on how you give access for, say, agricultural products.

Fertilizers, Yields, and the Food Chain

Oleg Ustenko: And they will certainly grow in price because fertilizer is, in the end, processed gas, it's a product of gas processing. And countries that supply gas are usually suppliers of chemical fertilizers. And this setup that happened just recently, literally a few days ago - regarding "let's allow Belarus to transport its fertilizers to the world market"... those aren't Belarusian fertilizers. Belarus doesn't extract gas. Belarus gets gas from a specific place. And that specific place from which it gets gas is the beneficiary of Belarus selling its fertilizers. And a clear shortage of fertilizers has emerged in the world.

What does a fertilizer shortage mean? It's compensated for instantly. It's a market. The market will instantly calibrate to a new price range. The price was, say, 100, but with a demand of 100, not all buyers are satisfied. So, the market will move to a price of 110, 120, 130, depending on what price becomes the new equilibrium price. And when it becomes, say, 150 or 120, what does that mean? Some of the players in the market who were willing to buy this fertilizer will simply drop out because they simply don't have the money, and this game of buying fertilizers will turn out to be economically unprofitable and inefficient for them.

And if they don't buy fertilizers - even if you just think they don't buy fertilizers, there will be less of them on the market. It's clear that if there is less gas and oil, you'll have less fertilizer. So, if there's less gas and oil and less fertilizer, then consequently yields will go down. Yields go down, which means less grain or other products or vegetables were harvested from 1 hectare of land. Well, if you've already harvested less, and demand remains at the previous level... again, unsatisfied demand for products - again the market, but now for agrarian products, will go up, looking for a new calibration.

The price was 100, it will become 120 or 150 or 130, depending on where the market stops, where it finds this new equilibrium. But what does "new equilibrium" mean? It means that if physically you have fewer products - that's inflation, but that's another question. Clearly, it exists in this case if the price went up. Но inflation is one thing. The question is: what is there to eat in such a setup? What is there to eat in this new setup? Because when you cut off some amount of demand, it means you are cutting off some amount of, excuse the expression, mouths. That is, some mouths will simply remain hungry.

And most likely these mouths that will remain hungry aren't mouths in developed economies, because in developed economies, they will reshuffle their consumer basket. In Ukraine, 50% - half the basket - is spent on food products. In Poland, it's about a quarter. If you move further, in France it's about 10% on food. By the way, in Great Britain, it's about the same. Well, they will spend 15% instead of 10% on food in Great Britain. In Poland, households will spend, say, 30% instead of 25% of their family budget on food. They will eat. Maybe they'll replace some products with others of slightly lower quality or slightly smaller quantities, but they will continue to eat.

But who are those who will be cut off from this market? These are the underdeveloped countries. This is a new point of tension that will arise. Because when you have nothing to eat, there is a big difference between "nothing to eat" and "nothing to refuel the car with." Imagine what will happen in these poorest countries that were already living poorly, and now they will eat even less. What is that? What will be the outcome? Rising social tension, testing of internal power, because the people will have to look at who is to blame for all this. And in a truly poor country, there's no doubt the internal government will be blamed first for continuing to allow bananas to be exported and sold on the external market.

They'll test the social tension, but nothing will change. Because nothing can change by changing or not changing the government. If the country is poor and families don't have money, then their ability to satisfy their physiological needs for food doesn't change. So, it will break through further. Break through where? An additional spike in migration. Migration will grow, migration waves. So one needs to be ready for this.

If the situation continues to develop in a pessimistic scenario, let's say, then one must be ready for problems of a different nature, a geoeconomic nature. But again, geoeconomics will pull geopolitics after it. Europeans aren't very happy about additional migrants. As you've already noticed, budgets are in deficit, and financing deficit budgets is becoming more and more expensive - not harder and harder, but more and more expensive. And so an additional growth in migration processes is possible. One can imagine this even using Europe as an example. What will this mean? It will mean that those who build their political platform on anti-immigrant sentiment will have more and more power. And who are they? The right wing.

That is, there is an opportunity to strengthen the right due to this developing crisis, including the food crisis. The right will gain points, and Europe is entering the peaks of political cycles. They are already on a short distance. Many of them - the Hungarians are just planning to hold elections on April 12, and then down the list many more countries will go to elections, approaching political cycle peaks. Bad economics, combined with migrants, will simply fuel the ratings of all sorts of right-wingers, and simultaneously isolationists who, by the way, are also part of the right. So the geoeconomic and, accordingly, geopolitical situation looks far from the best.

Arab Spring 2.0: Why the Maghreb and Africa May Explode Again

Yuriy Romanenko: Far from the best. I also wanted to add that the Arab Spring started precisely because of price inflation. And what exploded in Tunisia, and then everything else in 2011, was a direct consequence of the sharp rise in food prices back then. And in Egypt, a whole layer of the population disagreed with it, and off it went. And given that these countries have specific climatic conditions, adding this now to all these fluctuations in the Gulf... of course, the Maghreb and Africa too - which has many food-importing countries - could explode, and then our beautiful Europe finds itself under the direct threat of all the immigration waves they fear so much.

And so, of course, they will tremble because they don't know what to do about it. Absolutely. The political systems of European countries are very inflexible and will only toughen up. Because the right - you're absolutely right - will press the governments of mainstream parties, and accordingly, they will behave like Merz, who are just toughening up the rhetoric. So I think Europe will be under massive pressure from this crisis. Now, Ukraine - they were asking on "Romanenko Shorts" if the 90 billion allocated to Ukraine could be cut. First, we need to get them, given the conflict we've entered with Orbán. God grant he loses. And perhaps this will be unblocked because Trump is helping his friend, but not in the direction he wanted, because given Trump's current reputation, getting support from Trump is equivalent to getting hit. And Orbán, as far as I know, had a 13% drop in support after Trump declared his support for him. So you know what, frankly speaking, I don't look at the situation with the Hungarians so tragically, and I'll explain why.

Hungary and 90 Billion Euro: Orbán's Dance and Its Price

Oleg Ustenko: Firstly, I believe that from all the signals we see - Orbán's speech, yes, the opposition's very powerful, active speeches - frankly speaking, I believe Orbán will highly likely be the winner in these elections. He seems very, you know, relaxed on the eve of this final push. Very relaxed. Usually, only politicians who are absolutely certain that the cards are falling and the stars are aligned exactly as they need can be that relaxed. Just scattered across the sky as they need.

But enough about stars and politicians. What do I think about Hungary? If you look with completely sober eyes, with a cash register in them, and just spin that register... Look, the Hungarians currently should receive investment resources from Brussels at the level of about 20 billion euros. 20 billion euros is approximately the investment resource that should come to them from Brussels under previously concluded agreements. And their government budget deficit for this year is approximately... to the GDP shares of each European country. Hungary is slightly less than 2% of the total GDP of the European Union. Accordingly, of these 90 billion euros that we in Kyiv, in Ukraine, should receive over 2 years, in '26 and '27, the Hungarians' share is 1.8 billion euros.

So their signature is 1.8 billion euros of their guarantee for this loan. Completely setting aside how it will be paid back, what money will be used to settle both interest and the principal of the loan itself, how it's tied to this Russian money lying frozen in the European Union. That's another story. It's also very important, but not important for this narrative.

And if you just look economically, as we said, with the cash register before your eyes... on one side you have 30 billion euros, on the other side 1.8 billion euros. Who would you have to be not to put your signature on 1.8 billion euros in order to bring 30 billion into your country? Clearly, economically or financially, there is no choice here. You sign and you get the 30 billion you want. So there is some other setup. And that other setup is, of course, a political one.

The political question. Is there an absolutely full link between Orbán and Russia, as Poland says, or is it a more consistent link? Clearly, he is playing on Russia's side, but in parallel, Orbán is also playing his own political game. And it would be strange if he didn't play this political game or dance this ritual dance he's dancing now. He's been dancing it since 2022. Every time we needed money, he started this dance.

He knows how to lead it, how to lead in this dance. He knows exactly what needs to be done. On one side he has Brussels, on the other himself. He knows when to turn left, when to turn right, when to take three steps forward and two steps back. He understands this very clearly, and Brussels knows it. And Brussels has always danced its part in this dance the same way. When Orbán took three steps forward, Brussels immediately said: "Take two steps back, otherwise you won't get the money we promised." After breaking a bit, Orbán always put his signature on all those documents. When put before the choice - either this or nothing, or you don't get your money from Brussels - he always signed.

It will play out exactly the same after April 12. Thinking Orbán will suddenly stall everything - well, that's possible. Such a probability exists. But still, in my understanding, while being a completely odious, strange, and unpleasant politician for us, he still clearly understands his economic benefit. Therefore, as soon as he jumps off the peak of the political cycle, even if he is the winner, it won't be a catastrophe for us. Brussels will get the signature from him quite quickly. I'm almost certain Brussels already understands how it will get this signature. Moreover, I'm almost certain Brussels has already clearly explained how the scenario will develop further to both Orbán and Hungary, the Hungarian cabinet, regarding what happens if they don't sign.

Therefore, in my understanding, the issue of Orbán's signature - who, I think, highly likely will win these elections - doesn't change the situation with our financing at all. We will get the money.

The April Cash Gap and the Bridge Financing Scheme

Oleg Ustenko: But, of course, the question arises, since we are moving to our context, the Ukrainian context: does this change anything for us? Yes, there are catastrophic challenges for us. And this important catastrophic challenge - that the elections are on April 12, then say a couple of weeks, or even a month to form a new cabinet of ministers. If Orbán - a bit faster, if not Orbán, then a bit longer. Well, in a quick scenario, say 3 weeks to form a Cabinet, have everyone sit in parliament and start life - the old life in a new way or a new life in the old way for Hungary.

And this means that after April 12, in a good scenario, we could find ourselves at the beginning of May before the first money from this loan reaches us. And what about us in our situation, when we counted on this money arriving in February? Okay, February, we survived somehow, but March is already over. And what to do in April? After all, the budget and the Ministry of Finance in no country, ours included, work on the basis that "whenever the money arrives, it arrives." No, both the amount of money and the rhythm of receiving funds are important.

There is no rhythm here, the one originally predicted. And if there is no rhythm, what to do in this short or long interval? It could drag on for a couple of months after April 12. What to do? And right here, there aren't many scenarios. The only scenario that should work is the so-called bridge financing scenario. You are at this point with your budget, and you already have no money, say, at the end of this month, which means at the beginning of April - just a couple of days away - you have no money, but you need to run your budget, execute your budget.

You must find this "bridge" financing to connect this point with that point when you have no inflows. And this connection, this bridge financing - these are the Scandinavian countries. And I understand there are more or less agreements with Norway that they can provide at least part of this bridge financing. It must also be remembered that bridge financing is short-term; you don't need it for a long term because you need to build this bridge from point to point, and it's not that big. Say, 2-4 months. But you must build it. Otherwise, you put all your internal public finances at risk.

Our Ukrainian finances will be in a serious zone of threats. And so if you have an agreement - I think we have one - with the Scandinavian countries, with Norway in particular, the issue is resolved. But here's the problem. In the first part, we said the global market situation is worsening. Debts are becoming more and more expensive. And Europeans aren't giving their own money; they need to get it somewhere, which means going to the external market.

And if the situation continues to worsen, the cost of debt will grow. And this cost of debt, the debt servicing, those interest rates, those magic 3, 4, and 5% we talked about - three for Europeans, four for Americans, and five for the English... in this case, the Europeans. Those 3 could transform into 3.2, and on 90 billion euros, which is about 100 billion dollars... excuse me. Half a percent is already very serious money. And if we say this loan is taken for 10 years, then we are talking about an additional delta of 5 billion dollars for servicing over the ten-year cycle. But that's an extra 5 billion dollars. And the Europeans won't be, to put it mildly, thrilled with such a worsening situation.

Ukrainian Defense Budget: 65 Billion vs. 100 Billion for Russia

Oleg Ustenko: Again, we are conceptually - we agreed that we are in such an extremely negative scenario for the world economy. So the question arises: "What to do if the delay in this lending is shorter?" By the way, let me remind you that the Europeans understand these 90 billion are critically important for us. They are important because, first of all, we need to ensure our security and defense. Security and defense cost a lot of money. In our setup, that's 65 billion dollars for the current year. 65 billion.

Last time we discussed it, we agreed that even though the Russians wrote 165 billion into their budget - and in fact probably 180 billion - we agreed that they still have to direct part of those funds to hold their external contour, which is much larger than ours. And those military contact lines with us. They have to spend somewhere in the Far East and keep an army near China. They have to keep an army everywhere. And deep in the country. So, say, about 100 billion of theirs goes to direct financing of the war with us. And we have 65 billion.

The Europeans clearly understand this. And so, in this 90 billion euro setup, 1/3 goes to our non-military budget, and 2/3 go to the military budget. And that's the total 90 billion euro loan we are supposed to get. That's why they are trying to shift most of it to the current '26, and less to '27. Most of it, as I understand, is about 50 billion for this year, of which 2/3 should go to the security and defense of our own country.

50 billion. 2/3 - that means 35 billion should, right?

Yuriy Romanenko: 2/3. Well yes, about that, not 31 billion euro. Say, around 35, around 35 billion dollars goes to our defense capability.

Oleg Ustenko: Plus 65 - 100. And the Russians, as we estimated last time, also have about 100 billion. And then we are at parity. 100 for them, 100 for us. And we also have the possibility to get high-tech military equipment from Europe, which is more effective. At least, that can be assumed, and it's probably a correct assumption. And then we are at parity, and the rest of the funds should go - 1/3 of that amount, which is about 17 billion euro for this year or say about 19 billion dollars should go into our state budget to cover the deficit of our state budget, which at the time it was adopted was about 45 billion dollars.

I didn't understand the figures that some Ukrainian politicians, including from the Cabinet, started voicing about 50-52 billion. I think they are partially taking sums from the deficit in the military direction. Spending probably increased there. Но suppose there is 19 billion dollars - I'm converting those 17 billion euro into 19 billion dollars - that should enter our budget for non-military spending items from those funds.

That leaves 45 minus 19 - a 26 billion uncovered deficit. Of those 26 billion, say, our Finance Ministry can find 10 billion on the market. What to do with the rest? Look for additional creditors, which the government has been doing. There are agreements with Japan, agreements with Great Britain.

This is why one must remember it's extremely difficult for them to finance us too. These are insignificant sums in terms of their GDP, but they still have to go to external markets and pay interest. And as we've determined, for Great Britain the current rate is about 5% per annum on ten-year bonds, which is more than enough and dangerous for any country - for an old constitutional monarchy like Great Britain, it's absolutely terrifying.

"Cut Everywhere Possible": Fuel Cashback as a Political Mistake

Oleg Ustenko: So what should be done if there are such risks? The only advice I would give immediately to any government, including ours - take the spending side of the state budget, immediately audit it, and see where government spending can be cut. Cut, just cut everywhere you possibly can. But clearly, being an advisor, it's much easier for you to say "cut where you can." For a politician, "cutting everywhere possible" means nowhere. Because on one hand, any politician will face this serious budget constraint. And on the other hand, it's a politician; he needs to be liked by his electorate, by his population. So simply going for a cut in the state budget spending is not that easy. But it's necessary; not easy, but necessary. There is no other choice.

And so this budget system must be led, kept in an iron grip so it doesn't turn left or right. And while doing that, cutting spending and going for unpopular cuts. These are all unpopular measures, but there's no choice. One has to go for it.

And so it becomes even more surprising that some of our spending suddenly starts to increase. Increasing part of our spending. For example, I believe the idea of fuel cashback is a completely wrong idea. Why is it wrong? Because when fuel prices rise, they will trigger a rise in all transport costs. In parallel, to repeat the chain - transport increases in price, production costs increase, prices go up. Clearly, inflation increases, and when inflation cranks up, it hits everyone. Just everyone. Inflation plucks any member of society, any citizen. Just some less, others more.

But those whom inflation really squeezes in its iron grip - and it will squeeze the most vulnerable layers of the population. This most vulnerable layer needs support. Why on earth distribute support to everyone at once when you have those who simply won't survive? Simply won't survive in this upcoming setup. You must concentrate on them. Not all motorists, not me, not you, not Pete, Vasya, or someone else should get this support from the Cabinet or some working entrepreneur.

No, they don't need support. That woman raising a daughter or a son or both alone, she must get support because she won't survive this. She simply won't. And the pensioner living on the minimum - not all pensioners, as we said last time, not those getting 100,000 pensions a month, but those living on the minimum pension. They must be helped because they won't survive. It's not just a question of targeting, but of concentrated targeting. You as a state must be concentrated on the most vulnerable layers. Otherwise, this support will simply vanish.

Incomes, Inflation, and Why the Tax Issue Isn't Solved This Year

Oleg Ustenko: You are hanging additional expenses on the state budget amidst a possible decrease in income. And this possibility is becoming a reality. Because, again, when fuel prices rise, they don't just rise and that's it. When there's less demand, when inflation cranks up, when demand for goods is lower... it means your domestic consumption will go down or not grow at the rates you expected. Your economic growth written into the state budget - you used it to calculate your budget revenue at 2-and-a-half percent growth for this year - it will be pulled down.

You pull it down, and it's not a fact you pulled it from 2.5 to 2.4 or 2.3. What if growth falls to 1.5%? What if even lower? That means budget revenue will be lower. And what will you do? You have the old expenses plus the ones you're adding. Your income is becoming lower.

Objectively, because the economy grows less. The Excel sheet or whatever the Finance Ministry calculated manually says: this enterprise got 100 hryvnias last year. So this year, accounting for growth, it will get 102, 102.5 hryvnias. Add inflation there, since we're talking nominal terms, which was say 6%. So it will get 102.5 plus roughly another 108. What if it doesn't get that much?

One might say - inflation in this case is catastrophically bad for the state, but the Finance Ministry might rub its hands a bit, only of course if inflation is in a more or less predicted range, because it allows collecting a bit more into the state budget. You can collect a bit more given that we are an import-dependent country and depend on exports too. But another question is that our exports are much lower than imports since the start of the war. Our monthly trade deficit is about 6 billion dollars. A catastrophic sum, 6 billion dollars. This deficit also needs to be financed somehow.

But if you drop slightly in your national currency, in our case the hryvnia, move into that parameter designated in the budget as 45.5 as the annual average rate, and you move into it a bit earlier... you have a bit of opportunity on one hand to support exporters - they will be slightly more competitive on the global market. And in parallel on imports, which are off the charts, which are 6 billion dollars a month more than our exports... just in case for those who didn't understand what a trade deficit is.

So, if you collect taxes on what you import, and your rate has dropped, you can collect slightly more taxes. Say your rate was 41, then it became 45.5... well, you'll collect more into the budget. What are you fighting with? Windmills. What will they give? Just a subsidy on gasoline or diesel now. Yes, you'll earn some points, but those points will be spent very quickly. Very quickly. Because to keep this price lower and always do cashback, you need resources.

And if there are no resources... Europeans are also trying to do this. They are reducing excises, reducing VAT. Even Poland did it, Slovakia is doing it... many are considering it as the main option, but they talk about an extremely limited period of time, and they don't have such deficits. They aren't as dependent on external financing - or rather, they are, but it's not as critical for them as for us.

And the rate could be kept at 40, but only if reserves were different. Even though they are at 55 billion dollars, a historic maximum. But again, this maximum isn't because everything is so wonderful with our monetary policy; it's because we are receiving funds from our partners, primarily Europeans, and this allows us to fill our reserves and maintain them at the necessary level.

And it seems completely illogical when instead of cutting costs, you increase the spending part of the state budget while seriously counting on being able to close the deficit or reduce it by collecting more money through increased tax pressure.

Well, firstly, clearly this won't work this year, because tax changes are usually adopted in any country starting from the next period - so not from '26, say, but from January '27. And all this struggle and hand-wringing and breaking of spears in these ineffective discussions... who's to blame? The Cabinet, which didn't say, or Parliament, which doesn't want to vote because the Cabinet didn't say and didn't want to take responsibility, but wrote a letter to the IMF saying "just a bit more and we'll vote exactly as promised." What is that? It gives nothing this year. It's about next year. But we live right here and now.

And right here and now, the question of how you will act this year must be solved. And this year, again, there is no choice - take and cut the spending side of the state budget. Of course, one should have thought earlier and not raised salaries for everyone across the board and maintained financing for Ukrainian horticulture and horse breeding. One should have thought about that in advance. Well, if they didn't think, the situation is what it is. Take the shears to everything that can be cut.

But again, who will cut? So the Cabinet must come out with an initiative and announce: "Guys, everything is very bad, let's cut." But one can imagine the Finance Ministry taking such a step and saying: "Look, things are very bad, we suggest revising the expenditure side of the state budget. We see opportunities here and there." If the Finance Ministry wants to and proposes "let's raise taxes here and there" and doesn't really answer the question of what to do with the shadow economy that might grow, giving us the opposite effect...

Well, overall, this kind of disconnectedness in terms of basic key moments of economic policy is extremely bad in any setup. And in the setup of a country at war, plus such a completely maddened external contour, it's clearly an extremely difficult situation. And maintaining the situation is extremely difficult. There are many constraints, and the desire of our fellow citizens to see only what they want to see, something pleasant and good.

"If it concerns government spending, then reduce it, but at the same time increase my own income. And if there is inflation, let it be in those product groups that have nothing to do with me. And if agrarian prices went up on the global market, then introduce an export duty, but at the same time squeeze the Europeans whose market we want to join. Let them play by our rules."

This dissonance in every single direction also, unfortunately, doesn't help. And, of course, steering the ship when a global storm is already underway, while those on the ship itself are trying to spit at each other... clearly, that's not an easy task. I'm not justifying anyone, but I want to say that in current conditions, governing becomes harder and harder. It's hard to hold the wheel steady if one person is pulling your sleeve, another is pulling your sleeve, and those passing by are trying to kick you. This applies to the entire government system.

Conclusion

Yuriy Romanenko: Exactly. It's hard now. Hard. Of course, it's hard for everyone, but in fairness, it's hard for them too. But if you don't use your thick head like Marchenko... looking for 60 and saying that you want to get 60 billion hryvnias by increasing taxes several times for individual entrepreneurs (FOPs) and then hoping these people will continue to pay taxes and no one will go into the shadows, and this won't cause the collapse of entire economic chains built around FOPs over decades... then what is there to be surprised about? They initiate the nonsense themselves, and then heroically think about how to get out of it.

Moreover, as far as I can see, except for Marchenko and some support in the Cabinet, no one is really pushing for this idea. And I have a feeling that just to pull money out of the IMF, they pull it to the top and say: "We have an idea, we'll get the figures the IMF wants to see this way." But they aren't holding the political and macroeconomic context unfolding in the country against the backdrop of the war in Iran and just the war here... or they don't want to hold it, or they just don't care. And as a result, we'll get a massive economic blow. Another one, which we initiated ourselves, if things continue this way. So. That's the situation, right? Well, as they say, time will tell. But there's clearly no optimism about the current situation. It's already obvious to everyone. Let's watch the situation, let's return to it.

Oleg Ustenko: Yes, good. Thank you.

Yuriy Romanenko: Thank you, Oleg Ustenko. Traditionally - full and detailed for the viewers. Yes, we'll keep moving. Friends, we aren't ending here. I'll have my own broadcast. I'll be on in a few minutes, so don't switch off, we'll talk about the main processes and more. It will be a Q&A format. So, ending this broadcast now and starting the next one. Bye.