Country Report Ukraine September 2009

Outlook for 2009-10

• Domestic politics will remain extremely uncertain and prone to instability in the run-up to the presidential election in January 2010. Risks to stability have increased in the light of the severe economic recession.
• Relations with Russia are expected to remain tense, at least until the presidential election. The two leading contenders are likely to adopt a friendlier position towards 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 high risk of further funding delays.
• Real GDP is forecast to contract by 17% in 2009 and to recover only slightly in 2010. There are significant downside risks to the forecast, as macroeconomic stability has yet to be restored.
• The budget deficit will widen sharply over the forecast period. Although the rate of inflation will come down, it will remain high. The current-account deficit will narrow sharply as a result of reduced import demand.

Monthly review

• In August the Russian president, Dmitry Medvedev, launched a scathing attack on Mr Yushchenko, accusing his administration of being anti-Russian.
• The prime minister, Yuliya Tymoshenko, claims to have won important concessions on gas imports from her Russian counterpart, Vladimir Putin, but the terms of any such agreement are far from clear.
• Parliament's business has been halted by a blockade of the parliamentary rostrum by the opposition Party of Regions (PoR) over its demands for higher pensions and minimum wages.
• The authorities repaid in full and on time the US$500m Eurobond that matured in August, with the assistance of the IMF's third tranche of support.
• The authorities have embarked on negotiations with investors on restructuring more than US$1.7bn in debts owed by the troubled state-owned energy company, Naftogaz.
• Delays in resolving the two remaining banks scheduled for recapitalisation and in raising household gas tariffs have raised concerns that the next IMF tranche, due in mid-November, will be delayed.
• Strong downward pressure has resumed on the hryvnya, owing to political and economic policy uncertainty, and corporate external debt payments.
• Real GDP fell by 18% year on year in the second quarter of 2009, according to a preliminary official estimate.

Source: Country Report

This report covers the following industry codes:
SIC Code: 37;60
NAICS Code: 336;52