Country Report Ukraine

Summary

The "Orange" administration of the president, Viktor Yushchenko, and the prime minister, Yuliya Tymoshenko, will be prone to internal divisions and will face a determined opposition.
The government's legislative capability will be limited by its slim parliamentary majority and internal differences. The lack of political consensus and the presidential election in 2010 will preclude swift structural reform.
Sharply rising inflation will present the main risk to macroeconomic stability in 2008. Although monetary policy will be tightened in response, fiscal policy is expected to be expansionary in 2008.
GDP growth is forecast to slow to an annual average of about 6.1% in 2008-09, reflecting the downside risks to the global growth outlook and significant uncertainty in the domestic economy, notably over surging inflation.
The current-account deficit is forecast to widen to an annual average of 5.7% of GDP in 2008-09, owing to rising import costs and strong import volume growth.

Ms Tymoshenko has said that she supports reducing the president's powers in favour of the legislature and has reportedly drawn up draft constitutional amendments to that effect.
The National Bank of Ukraine (NBU, the central bank) revalued the official exchange rate by 4% in May to tackle inflation, but has yet to set out a clear exchange-rate policy.
Ukraine has formally acceded to the World Trade Organisation (WTO).
The presidential administration has opposed the government's ambitious plans for accelerating large-scale privatisation in 2008.
Inflation hit 30% year on year in April 2008, as the impact of global energy and food price inflation has been exacerbated by the government's spending policies and the de facto peg if the hryvnya against the US dollar.
Real GDP growth picked up to 6.2% year on year in January-April 2008, from 4.9% in January, fuelled by rapid growth in private demand. The manufacturing sector has also picked up pace, but metals output remains sluggish.
The NBU's efforts to compress hryvnya liquidity have prompted many banks to reduce their consumer lending. However, foreign-owned banks have maintained strong lending.