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measures to tackle the virus, including hiking the pay of medical professionals and introducing punishments for those that violate quarantine rules.
Its still early days and Ukraine is well placed to nip the infection in the bud, but the experience of other countries is that containing the outbreak is hard. At the time of writing Ukraine had only conducted 600 tests and needs to massively ramp this up if it is to control the outbreak. Last week Ukrainian president Volodymyr Zelenskiy called on the country’s top businessmen to help, specifically to help buy the medical equipment that is needed.
So far there are no estimates on the size of the impact that the virus is likely to have on Ukraine’s already struggling economy. But in a sign of things to come Goldman Sachs announced on March 20 that it estimates a 24% contraction in the US economy in the second quarter, which is a lot bigger than the last biggest q/q contraction of 10% in 1958. The investment bank also said the unemployment rate to go to at least 9%.
Ukraine in a better starting position
Ukraine goes into this crisis in a lot better condition than it did to the last crisis in 2014 that saw a 17% contraction of the economy at its worst point in the first quarter of 2015.
Likewise the hryvnia was hit hard in 2014 when it tumbled from about UAH8 to the dollar to just under UAH30 in a rapid devaluation. Although the currency quickly recovered some of the ground lost during the shock of the revolution, since then it has continued to slide form around UAH20 in 2015 to trade at about UAH25 in the last year.
The first impact of the arrival of the coronavirus was to send Ukrainians to the banks to panic buy dollars as they anticipate yet another devaluation. The National Bank of Ukraine (NBU) stepped in and pumped over $1.5bn into the foreign exchange market in the week of March 16 but the hryvnia had already slid to UAH27 and with only $26.6bn in reserve the central bank cannot afford to keep propping up the national currency for long without burning through its crucial reserves.
Before the NBU started into intervene in the market the reserves wre equivalent to about 3.7 months of import cover – economists estimate a country needs a minimum of three months of import cover to ensure the stability of the currency – but those reserves have been hard won. In January Ukraine started its post-Yanukovych era with only $13.4bn, or around two months of import cover, and was unable to prevent the decline in value of the hryvnia.
The timing of the arrival of the coronavirus is particularly unfortunate as Russia’s state-owned gas giant Gazprom agreed to pay a $2.6bn fine in December that significantly boosted reserves in January giving the country a bit more wiggle room. But if the NBU continues to burn through its reserves at the same rate as it has been in the last two weeks, that money will be used up in less than three weeks.
However, the country is in a stronger position when it comes to inflation. Following several years of very low inflation, the prices of goods soared in 2015 as the currency and economy collapsed to reach a crushing high of 60%
10​ UKRAINE Country Report​ April 2018 ​ ​www.intellinews.com