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2021, if adopted, could push the fiscal deficit to over 6% of GDP and increase total financing needs to over 13% of GDP in 2021.
Financing risks will remain high in the medium term, thus containing current expenditure pressures is needed to keep the fiscal deficit at more sustainable level, and also to anchor inflation expectations. Net foreign direct investment (FDI) inflow this year is expected at the level of 2019 – 2.1% of GDP, and next year the figure could grow to 2.5% of GDP.
Despite the problems Ukraine has entered this crisis in better macroeconomic condition than ever before, due to prudent macroeconomic management by the National Bank of Ukraine (NBU), which has put in an outstanding performance. That makes it doubly distressing that the well respected former governor Yakiv​ ​Smolii was ousted in July​ and the independence of the central bank is clearly under attack.
At the end of October a crisis of confidence in Ukrainian president Volodymyr Zelenskiy’s government amongst Ukraine’s main donors was rapidly gathering pace. The Constitutional Court struck down key pieces of legislation that hold officials accountable for corruption and nixed the mandatory annual electronic income declarations that introduced some real transparency into the system.
Zelenskiy responded by calling for the dismissal of the court, which neither the president nor the parliament has the power to do, which will lead to a full blown constitutional crisis if he follows through on his threats.
The Constitution Court’s decision is only the latest in the backtracking on reforms by Zelenskiy. His government got off to a very good start after taking office last August and introduced a hectic agenda of reforms, but after the Zelenskiy shook up the government with a major reshuffle on March 3​ policy making went backwards. The technocratic Ukrainian Prime Minister Oleksiy Honcharuk was sacked and since them almost all of the outstanding reform-minded officials have also lost their jobs, only to be replaced by Zelenskiy-loyalists. The ousting of Smolii was the most notable of these changes and as the independence of the NBU is a red line for the IMF it will also mean the de facto suspension of the $5.5bn Stand by agreement (SBA) with the IMF. A tranche of $700mn is due in the autumn, but given the IMF has not sent an appraisal team to Kyiv yet that money is almost certain not to arrive this year.
As ​bne IntelliNews​ went to press the government was scrambling to undo the billowing crisis of confidence, but yet again Ukraine’s reform credentials have been badly damaged. This is doubly disappointing as in August, as ​bne IntelliNews​ reported at the time, the country seemed to have surmounted all its main problems, even if major challenges remained.
5​ UKRAINE Country Report​ November 2020 ​ ​www.intellinews.com