Ukraine Country Report May17 - May, 2017

June 6, 2017

Ukraine has got off to a poor start in 2017. When Russia crashed in 1998 the economy bounced back the next year growing by a record 10% y/y. Ukraine is not enjoying much of a bounce despite the fact its economy contracted far more than Russia’s in 1998, down by a massive 15% in 2015.

And the outlook for this year has been scaled back from the 3.5% previous to about 2% growth expected by the end of this year due to the economic blockage of the industrialized Donbas region.

Ukraine is having its own 1990s moment as collapsing income levels have lead to falling quality of life, life expectancy and consumption. On top of that falling commodity price in things like steel have also hurt the balance of payments (part of Russia’s boom was driven by the rapid recovery in oil prices).

The government’s program to reform the country is also a mixed bag. While excellent progress has been made in the banking sector and energy markets, those reforms are in danger after the celebrated governor of the National Bank of Ukraine (NBU) quit and the management team at state own gas company Naftogaz have also threatened to quit due to government interference.

Still, the IMF was impressed enough to pay out the next $1bn tranche from the standby program, which has been delayed for nearly a year.

Next up the government needs to pass crucial pension and land reforms to get more IMF money, but this effort has already fallen at the first fence. The Rada refused to pass a draft bill that would have created very modest provision for private land ownership. The IMF team in Kyiv in May also indicated they were not happy with the pension reform plan either, so it looks highly unlikely any more IMF will be paid out this year.

Against that the Ministry of Finance intends to tap the international credit markets in the autumn and if it can issue a Eurobond – which seems likely – the government will be able to wean itself off the aid money.

Finally the fight against corruption is going nowhere. The National Anti-Corruption Bureau of Ukraine (NABU) has targeted high level politicians and a slew of regional officials were arrested in May, but at the same time the Poroshenko administration has managed to install one of its own as the auditor of the agency, which brings it under the president’s control. Ukraine’s elite have no interest in seeing corruption eradicated, not so much as they are on the take, but they would all be on hook if real investigations were launched and people actually jailed for stealing.


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