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1.0 Executive summary
March was a real roller coaster ride for Ukraine. The coronavirus (COVID-19) was imported into the country by migrant workers and holiday makers returning home but in just a few weeks infection rates took off as the authorities scramble to counter the threat of an epidemic.
Happily as Ukraine is rather late to get the infection it was clear to everyone the seriousness of the situation and government has been quick to act. A state of emergency has been declared, schools, universities public places and public transport have been shut and the boarders were closed on March 30 to everyone except returning Ukrainians.
Nevertheless as of April 1 the virus had clearly begun its exponential growth phase and now the attention has turned to preparing the medical system to cope with the inevitable rise in afflicted. The down side is after years of neglect the Ukrainian health system is ill equipped to cope. It has some 3,000 ventilators, but some 10% don't work and if the virus is not contained then the system will be very quickly overwhelmed.
The economy was also immediately impacted. Commodity prices have fallen which will hurt exports as Ukraine remains dependent on metal exports among other things.
The collapse of the Russian ruble had its usual spill over effects on the rest of the region and the hryvnia has also lost some 15% of its value. That sparked panic buying of dollars and the National Bank of Ukraine (NBU) burned through $2bn of its very limited reserves in just 10 days before managing to assure the public that nothing bad was going to happen.
But the threat of a default loomed large as Ukraine has still not signed off on a new Extended Fund Facility (EFF) with the IMF. The Emerging Market wide sell off at the end the start of March completely altered the investment case for Ukraine and in effect cut it off from the international debt markets making it impossible to roll over some $4.1bn of debt obligations due this year. With out an IMF deal the country was facing near certain default – a third whammy on top of the others.
It went down to the wire but at a late night session the Rada eventually signed off on the bank and land market laws that the IMF has been insisting on. At the time of write both laws are through in their first reading and bar mishaps they will open the way for over $10bn in International Financial Institution (IFI) assistance that should see Ukraine comfortable through the rest of this year.
But the impact on the economy will be sever. Growth of 3.7% expected this year will turn into a contraction of 3.9% and incomes and the standard of living will fall. The government’s on resource to pay for the needed aid is the budget where the deficit is likely to balloon as much as five-fold to 10% of GDP. Even with an IMF programme in place the current crisis is going to set Ukraine back several years if not more.
4 UKRAINE Country Report April 2018 www.intellinews.com
