Page 4 - UKRRptAug20
P. 4
1.0 Executive summary
The Economy Ministry estimates that Ukraine’s GDP contracted by 5.9% from January to May, the height of the Covid lockdown period. With the economy starting to recover, estimates of the year end GDP performance range from -4 to -8%. In June, the National Bank of Ukraine’s index of business activity expectations hit 45.5 points, up from 29.9 points in April. Below 50 indicates a rather pessimism.
Ukraine’s economy fell 10% y/y in the second quarter, according to the consensus forecast of Reuter’s monthly poll of analysts. This would be the biggest drop since the 14.5% drop recorded in the second quarter of 2015, the economic aftermath of Russia’s annexation of Crimea and the outbreak of war in the industrial east. For this year, the economists forecast gdp will shrink 5.5% y/y in the third quarter and 3% in the fourth quarter.
Ukraine’s foreign reserves hit $28.5bn on July 1, the highest level in eight years, reports the National Bank of Ukraine. Boosting reserves 12% over the June 1 level, the IMF deposited its first tranche – for $2.1bn – on June 12. This deposit triggered hundreds of millions of dollars in additional deposits by the EU and the World Bank.
Reversing five years of modest foreign direct investment inflows, Ukraine recorded a net outflow of $1.5bn in foreign investment during the first five months of this year. Last year, Ukraine attracted $1.9bn in foreign direct investment, reports the State Statistics Service. About one quarter of the 2019 ‘foreign’ investment came from Cyprus, presumably Ukrainian and Russian money.
Politically things have taken a sharp turn for the worse. In July the well respected governor of the National Bank of Ukraine (NBU) Yakiv Smolii was forced out of office undermining the independence of the central bank.
The move was widely seen as a victory for oligarch Ihor Kolomoisky, who has been campaigning to regain control of his PrivatBank, but is also against the IMF deal. Almost immediately Zelenskiy started talking about the over valuation of the hryvnia and called for the exchange rate to be reduced to UAH30 to the dollar from the current c.UAH26.
That would favour exporters and bring some short-term growth, but at the expense of sending inflation shooting up. Observers were universal in their condemnation of weakening the currency, but more worryingly the IMF suggest the new $5bn Stand by agreement (SBA) is now in danger. Ukraine has already received the first $2bn, but official IMF representative to Kyiv suggested the next payments are certain.
If the IMF cooperation breaks down – yet again – then Ukraine will not be able to meet its debt and budget obligations. Kyiv has some $12.5bn of debt to repay this year and the budget deficit has been expanded from 2% of GDP to over 5% that also needs to be financed somehow. All-in-all Kyiv will double borrowing this year to c.$24bn, but will not be able to raise this much without a working programme with the IMF.
4 UKRAINE Country Report August 2020 www.intellinews.com
