Country Report Ukraine May 2009

Outlook for 2009-10

• Domestic politics will remain extremely uncertain and prone to instability in the run-up to the presidential election in either late 2009 or early 2010. Risks to stability have increased in the light of severe economic dislocation.
• Relations with Russia are expected to remain tense until the presidential election. The two leading contenders are likely to adopt a friendlier position to Russia than the incumbent, Viktor Yushchenko.
• The Economist Intelligence Unit assumes that the authorities will take sufficient policy steps to keep the IMF programme broadly on track, although there is a risk of further funding delays.
• There will be a deep recession in 2009: real GDP is forecast to contract by 10%, and to recover only slowly in 2010. Despite some recent signs of stabilisation, the hryvnya and banking sector remain risks to the outlook.
• The budget deficit will widen sharply over the forecast period. Inflation will slow but remain high. The current-account deficit will narrow sharply as a result of reduced import demand.

Monthly review

• The Constitutional Court has failed to back an appeal by MrYushchenko questioning the legitimacy of the current government, which could have allowed him to disband parliament.
• Viktor Yanukovych, the leader of the opposition Party of Regions (PoR), has said that he will run in the presidential election, as has MrYushchenko, despite his extremely low ratings in the opinion polls.
• Ms Tymoshenko has reached another gas agreement with Russia, under which Ukraine will not be penalised in 2009 for underconsumption of gas, and Russia has been invited to help to modernise the gas transit network.
• The IMF has released a delayed second tranche of funding. The IMF has agreed to a budget deficit target of 4% of GDP in 2009, and the government has approved a number of revenue-raising measures.
• The authorities have announced a list of seven banks that will be recapitalised using state funds, at a cost of HRN20bn (US$2.6bn).
• The banking sector posted a net loss of HRN7bn in the first quarter of 2009 as a result of bad loan provisioning. The pace of deposit withdrawals from the system has slowed.
• The hryvnya has stabilised recently, owing to currency auctions, intervention and exchange-rate restrictions by the National Bank of Ukraine (NBU, the central bank), as well as improved sentiment because of the IMF deal.

Source: Country Report

This report covers the following industry codes:
SIC Code: 47;65;60;37;10;53;49;48;70
NAICS Code: 48;53;52;336;212;44;22;517;72