Page 11 - bne IntelliNews Country Report: Ukraine Dec17

undermine the reforms needed for medium-term growth and stability. Many of these necessary structural changes are politically unpopular, and will touch on vested interests. The recent upturn has given the administration of President Petro Poroshenko extra breathing room and reduced its dependence upon Ukraine’s bilateral lenders. This, in turn, has eased the pressure to enact reform measures such as removing a moratorium on agricultural land sales and overhauling the pension system.
Ukraine’s land laws have resulted in the development of a parallel, de facto market in agricultural land accessible only to connected insiders, inhibiting competition in the agribusiness sector. Despite continued pledges to reform the sector, parliament has repeatedly extended the moratorium on land purchases. And despite IMF fears that the state pension fund’s $5bn deficit is unsustainable, parliament voted to increase pension payments in October this year. The decision was taken in the knowledge that Kyiv could cover its outstanding debts without IMF help. In short, the IMF no longer has a carrot, meaning it can no longer use the stick.
Second, the ongoing conflict in the east is a clear and present security risk for foreign operators with exposure to Ukraine. In this region of the country, trade blockades and restricted access are a major source of disruption for the highly important agricultural sector. And while most of Ukraine’s major industrial hubs are not directly affected by the fighting at present, a sudden escalation in the conflict could pose a threat to foreign personnel, business operations and capital assets in other areas of the country.
Third, corruption and crony capitalism continue to distort the playing field for overseas companies. Many industries are dominated by a clique of politically connected oligarchs who are able to game the system and erect sizeable barriers to entry for new participants. Shortcomings in the rule of law mean that foreign operators have limited legal recourse and are less likely to be treated fairly in the event of a commercial dispute.
Accordingly, foreign businesses looking to take advantage of Ukraine’s strengthening economic fundamentals should carefully consider the structural risks that remain an inherent part of Ukraine’s political and institutional landscape. As far as short-term investors are concerned, we see definite potential for upside in asset prices over the next 12-18 months. Nevertheless, amid geopolitical tensions and considerable domestic political uncertainty, local market investors will need a strong stomach.
Michael Henderson is chief economist and Daragh McDowell is principal analyst – Europe at global risk consultancy Verisk Maplecroft.
2.5 Govt sees $5.5bn of intl funding in 2018
The National Bank of Ukraine (NBU) expects to receive $3.5bn in financing from the country's main donor, the International Monetary Fund (IMF), $1.5bn proceeds from Eurobond placement and $500mn in financing from the World Bank in 2018, according to the regulator's November inflationary report.
Earlier, Ukraine and the IMF failed to agree a new price-setting formula for domestic gas tariffs, which is crucial for the continuation of existing funding
11 UKRAINE Country Report December 2017 www.intellinews.com