The stable crisis. Ukraine’s economy three years after the Euromaidan

Abstract:

The economic statistics for 2016 indicate that Ukraine has managed to overcome the toughest phase of the economic crisis. For the first time in four years, the Ukrainian economy recorded a positive growth rate of around 2%[1]. This is due to the reforms launched in the first months following the EuroMaidan and of the implementation of the reconstruction programme under pressure from Western lenders, mainly the International Monetary Fund (IMF) and the EU. In addition, the favourable situation on global commodity markets and the drop in the price of energy resources, as well as good weather conditions which enabled record high grain harvest and an all-time-high export of grains, have had a positive impact on the Ukrainian economy. Economic growth has accompanied the stabilisation of the macroeconomic situation, which manifests itself, for example, in halting the slide in the hryvnia in concert with the gradual replenishment of foreign exchange reserves, the favourable balancing of budgetary revenues and spending (the deficit of around 3% GDP), maintaining the expected level of inflation and the improvement of the situation in the banking sector.

These achievements, however, are unimpressive when viewed in the context of the scale of the crisis which affected Ukraine in 2014 and 2015, when the cumulative decline in GDP was 16.5%. Growth was recorded in the key sectors of the economy merely as a result of a low reference base. Moreover, the stabilisation of state finances has curbed the drive to carry out reforms by the part of the ruling elite and fostered a return to nebulous financial schemes in which the highest-ranking politicians are involved. The war in the Donbas, alongside the lasting systemic corruption, insufficient deregulation of the economy and the lack of reform of the judiciary, contribute to limiting both the inflow of foreign investments and the development of the business sector. In 2017, sustaining the rate of economic growth will mainly depend on factors beyond Ukraine’s control such as the situation on foreign markets and the weather conditions, as well as on the development of the situation in that part of the Donbas which is not controlled by Kyiv and on the so-called demarcation line. In an optimistic scenario, which assumes a status quo in the eastern part of the country, continued slow pace of reforms and cooperation with the IMF, Ukraine’s macroeconomic situation will remain stable and its GDP growth rate will continue to be around 2–3%.

ESO: Background information: Ukraine’s Indispensable Economic Reforms (Carnegie Europe, April 2016) http://www.europeansources.info/record/ukraines-indispensable-economic-reforms/

---