Page 4 - UKRRptDec19
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1.0 Executive summary
Ukraine’s economic growth is slowing, dropping to 4.2% in the third quarter from 4.6% in the second. Industrial production also stumbled in October contracting by 5% from a milder 1.1% contraction in September.
The economy has bounced back from the crash in 2014-15 but has been growing below potential thanks to the political uncertainty and the war with Russia, amongst other things. Now the initial honeymoon is over and the new administration is starting to run up against Ukraine’s structural constraints. That has lead to underinvestment and with the second lowest incomes in emerging Europe – the per capita incomes as measured in purchase price parity (PPP) terms are $9,200, half the level of Russia and Belarus, and only just ahead of Moldova – lead to a fifth of the work force leaving the country for Ukraine’s EU neighbours.
Having said that the economy has been stabilised. Inflation is falling, the currency has appreciated by 15% YTD, gross international reserves (GIR) are at $22bn and cover 3.4 months of imports. External debt is falling and the domestic bond market is buoyant providing a new and useful source of funding for the government.
The hectic legislative programme launched at the end of August is also continuing with a raft of long overdue legislation being put in place and another raft is due to be submitted to the Rada by the December 1 deadline.
Amongst the bills approved by the Ukraine parliament included anti-embezzlement, illicit enrichment bills, which was demanded by the International Monetary Fund (IMF). The framework of the land market bills were passed and a functioning land market is set to launch in December 2020, although the question of allowing foreigners to participate remains moot.
However, the situation has been further destabilised by the antics of oligarch Ihor Kolomoisky who is clearly under the protection of Ukrainian president Volodymyr Zelenskiy and has been openly attacking the National Bank of Ukraine (NBU) and its staff. The NBU responded in November with its strongest statement yet, openly accusing Kolomoisky by name of orchestrating attacks and intimidation of the central bank and its staff.
This show down is adversely affecting the investment climate
with would be foreign investors staying away until there is some clarity over Kolomoisky role. A second IMF since the summer was in Kyiv and left at the end of November without coming to a staff level agreement. The chances of a new Extended Fund Facility (EFF) deal worth circa $5bn being approved by the IMF December meeting is now unlike and negotiations will almost certainly spill over into the New Year.
4 UKRAINE Country Report December 201 www.intellinews.com
