BNE IntelliNews: Ukraine Country Report, November 2016 - November, 2016

November 30, 2016

Ukraine’s economy has returned to growth and the list of reforms being put in
place is slowly getting longer. The economy expanded by 1.8% in the third
quarter and could end this year with about 2% growth.

However, that off a very low base after the double digit contractions of the last
few years. To put this in context the dollar value of Ukraine’s GDP is about
$90bn, which is a tenth that of Russia: Ukraine is a big country with a small
economy at the moment.

Reforms are progressing and there has been very notable successes in energy
tariff realignment and the clean up of the banking sector has been stellar.
Also a start has been made on administrative reforms and the establishment of
the Anti-Corruption Agency is seen as key. The problem with the latter, and with
much of the anti-corruption drive, is it has no teeth so this is at best a half baked
change that is a step in the right direction but in of itself will not be sufficient to
produce any real impact on corruption.

The need for an effective anti-corruption drive has become the overweening
demand of Ukraine’s international donors, particularly the IMF that has de facto
suspended its standby program until visible progress is made. The conditionality
that has been put on releasing IMF tranches has become very strict, but there
have been some distributions this year.
The lack of visible progress is also impacting domestic politics. The populous
has become very disillusioned and the ruling Party of Poroshenko would not
even pass the 5% threshold to enter the Rada if elections were held tomorrow.
President Poroshenko himself would come fourth in a presidential election,
which would be won hands down by former prime minister and populist firebrand
Yulia Tymoshenko.

Populist rhetoric is increasingly dominating the national debate and Tymoshenko
is threatening to undo some of the austerity measures like gas tariff hikes, in her
bid to win office. There is a growing danger that the whole reform drive will be
derailed in the process. Elections are not scheduled for another two years, but
the current pace of reforms are not fast enough to produce tangible
improvements by then.

If the government cannot win by delivering prosperity it can win by delivering on
integrity. However, this also unlikely as there seems to be little real commitment
to fighting graft and making root and branch changes to the system that has
been built up over the last 20 years. Instead Poroshenko has gone for capturing
the existing system and installing his people in key posts. This is the slow way to
make reforms.

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