Page 4 - UKRRptMay20

1.0 ​Executive summary
A global financial and public health crisis was the last thing Ukraine needed, as it was already struggling to gather some momentum ​following an almost total collapse of the economy in 2015 and the ongoing undeclared war with Russia in the east of the country.
The economy had just started to grow modestly in the first two months of this year​, and assuming a new International Monetary Fund (IMF) programme is agreed, 2020 should have been the year where Ukrainian president Volodymyr Zelenskiy could start delivering on his promise for a better life. Now everything has gone pear-shaped, or actually L-shaped.
Ukraine’s economy will contract by an estimated 4.2% this year ​– although all predictions remain very unreliable and things could get a lot worse -- and then see an L-shaped recovery over the following years, according to experts. That estimate is severe downgrade from the October forecast of 3.2% growth in 2020, according to Ministry of Economic Development, Trade and Agriculture estimates.
"According to experts, Ukraine will show a deeper decline than the global economy, which will be 4.2% in 2020. The nature of recovery will be the same, the L-form: quarantine measures already adopted in Ukraine will be further strengthened and will last until the end of the second quarter, which will have a more negative impact on the country's economy, as a result of, which recovery will be very slow," the ministry forecast says.
In 2021 the Ukrainian economy will return to growth in 2021 ​when it will grow by 2.4%, the ministry said, according to the report. The experts also worsened the inflation forecast this year from 6.3% to 7%, but next year they expect it to drop to 5.9%.
According to the forecast, the average annual hryvnia exchange rate to US dollar exchange rate will be UAH28.85/$​ and the modest wage growth of the last year will reverse to a contraction. Ukraine already has some of the lowest wages in the region. Moreover, the pandemic will kill off the migrant work income and the fall in remittances from circa $16bn in 2019 – which could halve – will impact the current account as Ukraine has been running a trade deficit of about $6bn with both Russia and the EU that was covered by the remittance intake.
The stay-at-home Ukraine labour will also impact the other countries of Europe​, which have come to rely on itinerant Ukrainian labour. Attempts to fly in labour to collect fruit and crops already ripening in the EU fields has largely failed as Ukraine and most of Europe remain in the depths of the pandemic.
The main question facing the government is how to pay for support and stimulus​? With little in reserves the government approved a large budget deficit of 5.6% of GDP, but it doesn't actually have the money to cover this promise of largess. Everything depends on getting a new IMF programme that will clear they way to some $10bn in International Financial Institution (IFI) funding, including a $2.5bn tranche under the IMF’s new Rapid Financing Instrument (RFI) facility that is designed to put cash into government’s pockets
4​ UKRAINE Country Report​ May 2020 ​ ​www.intellinews.com