Ukraine Country Report Nov17 - November, 2017

November 3, 2017

Electioneering for the presidential vote in 2019 is in full swing now and increasingly affecting the political agenda, slowing reforms as the government is starting to put off the more painful changes.

Ukraine’s opposition leader, former prime minister and head of the Batkivshchyna (Fatherland) party Yulia Tymoshenko announced she will stand as a presidential candidate in the 2019 presidential elections and she has made a remarkable come back from the poor support she garnered post the EuroMaidan protests in 2014 to lead the polls today.

Some progress was made on the reforms front with the Verkhovna Rada passing its pension reform package on October 3. The bill was one of several crucial reforms necessary for further IMF allocations of funding under the $17.5bn funding programme.

But the Ukrainian government defied the IMF by reneging on a promise to hike domestic gas tariffs again just as the heating season starts. This has lead to a stand off and means even the government admits the next IMF tranche of c$1.5bn will not be released before next spring.

The anaemic economic recovery continues. The National Bank of Ukraine (NBU) has revised its economic forecast for this year upward from 1.6% year-on-year to 2.2% y/y saying that the nation's economic growth in 2017 will be stronger than expected. And GDP growth is expected to speed up to 3.2% and 3.5% in 2018 and 2019 respectively, according to the government.

Private consumption is the main driver of economic growth in these years, according to the NBU, thanks to higher wages and pensions, better consumer sentiment and a pick-up in consumer lending.

Industry is doing less well and Ukraine's industrial production declined by 0.3% year-on-year in September following a 1.2% y/y growth in August, the state statistics service Ukrstat reports.

The improving consumption is also sucking in more imports. Ukraine's trade deficit in goods reached $3.3bn as of the end of August, more than doubling from $1.5bn a year ago, the State Statistics Service reported on October 17. The widening deficit was driven by goods import growth (27.4% y/y in 8M17) exceeding export growth (21.1% y/y).

However, the economy is more or less stable and Ukraine's foreign exchange reserves increased by $602mn, or 3.3% month-on-month to $18.637bn in September, according to the NBU, which is well over the three months import cover needed to stabilise the currency.

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