Page 5 - UKRRptNov18

1.0 Executive summary
Ukraine’s economic growth picked up in the third quarter to 3.8% but the economy is still weighed down by its deep structural problems, endemic corruption, failure to implement wide ranging reform and a destabilising war with Russia.
The macro situation is now stable and following the issue of a $2bn Eurobond in October the countries funding needs are now covered until the end of the first half of next year, which is a relief.
More good news came in the form of a preliminary agreement with the IMF in October that clears the way to restart billions of dollars in aid not just from the IMF but other donors that had tied their aid to the successful conclusion of a new IMF deal – including $1bn worth of loans from the World Bank and another $1bn from the EU. However, the IMF deal still needs to be approved by the board and that won’t happen until December and then only after the government actually implements a promise to hike domestic gas tariffs by 23.5% in November as well as the final passage of the 2019 budget law. All-in-all the first disbursement of IMF money of about $1bn is now not expected to materialise until January 2019.
The need to continue with reforms is pressing as although the economy is growing again that growth is far below potential. Ukraine is attracting almost no investment – either by foreign nor domestic investors – and with incomes now the lowest in Europe the most able bodied workers have left the country for EU neighbours like Poland where salaries are four times higher than at home. These problems will weigh on the recovery, which will be below potential as a result.
The World Bank has revised downward its forecast for Ukraine's GDP growth in 2018 to 3.3% year-on-year from 3.5% y/y. The nation's GDP grew by 3.8% y/y in March-June , according to Ukraine's state statistics service Ukrstat. The country’s real GDP rose by 3.1% y/y in January-March, or 0.9% quarter-on-quarter on a seasonally adjusted basis.
The recovery is also causing a problem with the current account deficit,
which has ballooned in the last two quarters and was running at $3.9bn as of October. The problem is the nascent recovery is sucking in imports, while exports have faulted. With low gross international reserves (GIR) and limited appeal on the international capital market Ukraine is not in the position to be able to sustain such a large deficit for long. Moreover, the debt redemption schedule increases sharply in 2019 as debt restructured by then Finance Minister Natalie Jaresko starts coming due in 2019 with at least $7bn to pay.
In its latest Regional Economic Prospects report, the EBRD said the approval and implementation of a new Stand-By Arrangement with the IMF would help to address Ukraine’s near-term external financing needs and maintain macroeconomic stability during the electoral cycle in 2019. However, the bank strongly implied that Ukraine is enjoying a temporary respite and not a recovery. The EBRD is forecasting Ukrainian growth of 3.5% in 2018 and 3.0% in 2019, compared with 2.5% in 2017.
5 UKRAINE Country Report November 2018 www.intellinews.com