Country Report Ukraine November 2008

Outlook for 2009-10

• Ukraine is unlikely to make significant progress toward membership of NATO over the forecast period. Nevertheless, should it do so, the risk of a destabilising escalation in tensions with Russia would increase.
• The domestic political scene will remain uncertain and prone to instability in the run-up to the presidential election that is due in early 2010. An early parliamentary election in December 2009 now looks unlikely.
• A lack of political consensus will constrain the authorities' ability to meet fully the IMF's conditions, but we assume that enough will be done to prompt the release of IMF financial support in the final quarter of 2008.
• In order to restore financial and economic stability, the authorities are likely to target a tightening of fiscal and monetary policies in 2009-10, as well as greater exchange-rate flexibility.
• The economy is now expected to contract in 2009 and recover only slowly in 2010, following the spread of the global financial market turmoil to Ukraine in October 2008.
• The currency will weaken sharply in 2009, and the current-account deficit is now forecast to narrow on the basis of lower import demand.

Monthly review

• The president, Viktor Yushchenko, has called a pre-term parliamentary election for December, but parliament has so far failed to release funds to finance a poll.
• The IMF has provisionally agreed a US$16.5bn stand-by arrangement for Ukraine to provide balance-of-payments support, pending approval by parliament of a number of anti-crisis financial and economic measures.
• Ukraine and Russia have reached a preliminary deal to stagger the rise of gas import prices to international levels over three years.
• The domestic currency, the hryvnya, lost over 20% of its value on the interbank market between the beginning of September and late October as steel export prices plunged and as access to external financing was curtailed.
• Metals output slumped by 17% year on year in September as external demand dried up. As a result, industrial output contracted by 4.5% year on year.
• Of the main economic sectors, only agriculture performed well in September, boosted by a strong harvest.

This report covers the following industry codes:
SIC Code: 13;49;10;60;48
NAICS Code: 211;22;212;52;517