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Ukraine's economy is not in crisis - but it is not far from it either. Another external shock could tip the balance, as the economy remains very fragile.

With only a little more than three months worth of import cover as hard currency reserves, Ukraine is living dangerously. Last autumn Ukrainians, fearing another devaluation that had already reduced the value of the hryvnia from UAH5/USD1 pre-crisis to about UAH8/USD1 now, withdrew some $3bn worth of currency almost sparking a financial crisis.

The National Bank of Ukraine managed to calm those fears, but a devaluation still lurks in the wings, which analysts believe is almost inevitable. Indeed, in May the NBU supervisory board member Yuri Poluneev admitted as much, saying there is a "high probability" that the central bank will allow a gradual hryvnia devaluation, although it is unlikely the government will allow this to happen until after the general election in October. Analysts at ING expect the hryvnia to end the year at about UAH8.41/USD1 and a growing current account deficit will put even greater pressure on the hryvnia.

In the meantime, strong consumer spending in the first quarter of this year, up 12.7% on year, heavy investment into football-related infrastructure, and a buoyant agricultural sector has been propping up growth. Still, Ukrstat reported that year-on-year growth in the first quarter was an anaemic 1.8% and industrial production has been shrinking since the summer of 2011. Local think-tank ICPS forecasts annual economic growth will slow to 3% in 2012, compared with 5.2% in 2011.

Yet the government seems unconcerned by the fragility of the economy and continues to spend heavily ahead of the elections. With revenues lagging the budget plan, analysts worry about a ballooning budget deficit this year. "Ukraine is growing more susceptible to external shocks as the economy becomes more imbalanced," ICPS said in an outspoken report in April, which accused the government of dodging badly needed reforms because of the looming election.

The lack of progress also means the IMF has suspended its stand-by agreement, which is unlikely to resume this year, cutting Ukraine off from its fiscal parachute. "The Yanukovych Administration is failing to deal with the country's most urgent economic problems," ICPS said. "The president's economic reform plan, which should have dealt directly with these issues, remains a paper tiger."