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time of writing, but it is another factor that makes another tranche from the IMF this year less likely.
At the same time the government is struggling to contain an accelerating second wave to the coronavirus (COVID-19) epidemic as daily infection rates start growing again from 1,000 per day to over 3,000 per day by the end of September. The government is very reluctant to reimpose a lockdown because of the economic damage it does.
The economy is starting to show some signs of life but growth has been badly damaged by the crises. The fall in the gross domestic product (GDP) of Ukraine in April-June 2020 amounted to 11.4% compared to the same period in 2019, the State Statistics Service said.
That followed a drop in GDP in the first quarter of 2020 of only 1.3%, while in the fourth quarter of 2019 there was an increase of 1.5%. However, investment bank ICU improved its forecast for the contraction this year to -5.7% from its earlier estimate of -6.7% as retail sales in particular have done better than expected and cushioned the blow.
Conditional on how the epidemic develops, the expectation is for the economy to return to growth next year of around 4-5%.
Fighting inflation has been one of the best stories of the last couple of years and although consumer price inflation increased very slightly in August it is still an extremely modest 2.5%.
The trade regime is another bright spot where things are improving as exports began to recover. However, Ukraine still runs a trade deficit that is largely covered by repatriated funds from Ukrainian workers overseas. For the first eight months of the year, exports are down 6.6%, to $31bn. Thanks to the fall in imports, down by 12.4%, whicih has fallen faster than exports, the trade deficit through August is $1.3bn, about one third the level of the same period last year.
Another bright spot is that the privatisation programme seems to be picking up steam slowly. The state has already sold off the Hotel Ukraine on Europe Square in the middle of town for almost $50mn and more hotels are on the slate to be sold. More significantly the state is getting ready to break up the state-owned alcohol monopoly and some distilleries are going to be offered to investors this year.
By the end of this year, the government plans to privatize: Kyiv’s President Hotel, the Odessa Port Plant, the Electrotyazhmash plant, the Krasnolimanskaya Coal company and the United Mining and Chemical Company. The Cabinet of Ministers approved this list on September 8. The State Property Fund (SPF) is discussing the possibility of doubling the plan of privatization receipts in 2021, to UAH12bn, with the lawmakers and the government of Ukraine, Head of the SPF Dmytro Sennychenko has said.
5 UKRAINE Country Report October 2020 www.intellinews.com
