Running in place: the Ukrainian economy has slowed after years of growth

© RIA Novosti / Grigory to Castinplace in fotobanka of Independence in Kiev. Archival photoRunning in place: the Ukrainian economy has slowed after years of growth© RIA Novosti / Grigory to Castinplace the image Bank

Expiring 2017 did not meet expectations of the Ukrainian government to achieve increased economic growth that emerged in 2016, following the financial and economic crisis. At the end of the year, GDP only repeat last year, and the final data can even be lower.

The economic slowdown was accompanied by a deterioration of Ukraine’s relations with Western creditors on the background of the completion of existing programmes of financial support are not in a hurry to give Kiev new aid, demanding to strengthen the fight against corruption.

According to economists, to continue the growth of the economy Ukraine lacks systemic reform. Experts believe that the country in 2018 will face serious economic challenges, it will not be able to cope without the support of creditors.

The most important events in economic life of Ukraine for the year was the start of the transport blockade of Donbass, the completion of the implementation of the Association agreement with the EU and the finishing line of the gas dispute between «Naftogaz» and «Gazprom» in the Stockholm arbitration.

Ordinary Ukrainians, the year was memorable for the increase in the minimum wage twice, with the adoption of the controversial pension reform, large-scale repair of roads, and the further rise in price of life due to inflation.

Growth slowed

At the end of 2016, the Ukrainian government said on stabilization of the financial-economic situation in the country after two years of crisis. In 2014, the GDP decline amounted to 6.8% in 2015 and 9.9%, 2016 Ukraine finished with a growth of 2.2%. This gave the government reason to look optimistically into the future. In the budget for 2017, the Cabinet of Ministers of Ukraine laid a 3 percent GDP growth.

Complete statistics service of Ukraine data on economic growth in 2017 yet, however, statistics for the first three quarters said that the increase will not be more than last year. In the third quarter GDP growth compared to the same period in 2016 slowed to 2.1%. According to the results of the second quarter the growth amounted to 2.3%, the first 2.5 per cent. Updated macroeconomic forecast of the Cabinet and did envisages GDP growth of 1.8%.

Authorities blamed the economic slowdown on the effects of the trade blockade of Donbass, which Kiev began in the spring, and expect to improve the situation in 2018.

Advisor to Prime Minister of Ukraine on economic issues, former Vice Premier of Slovakia Ivan Miklos thinks that the economy Ukraine has a potential for growth at 6-7%. «Ukraine has the potential for sustainable growth at 6-7%, when will be more rapid and deep reforms. But talking about this year, I think almost all of the percentage reduction in GDP growth was due to the blockade of Donbass», — said Miklos at a press conference on summing up the economic results of Ukraine.

Financial analyst, managing partner of consulting company Capital Times Eric Naiman believes that in 2018 Ukraine will face serious challenges in the economy. According to him, the current economic stability is not a consequence of the specific reforms, as a result of the macroeconomic situation in the world markets.

In particular, to help Ukraine high world prices for raw materials, which is the main export commodity of the country, as well as high liquidity in the global currency market. However, according to the expert, in 2018, the situation can change that will hurt the ability of Ukraine to replenish its foreign exchange reserves, as well as trouble debt service, the repayment of which next year will have more than was in the past. He also believes that the factor of economic destabilization can be coming in 2019 presidential elections.

The largest creditor of Ukraine — the IMF, in 2017, Kiev allocated one tranche of $ 1 billion, another tranche was postponed to 2018. Just for the current program EFF Kiev for three years, has received four tranches of 8.5 billion dollars. The program ends in 2018, Kiev is unlikely in such a short period to get all $ 8 billion remaining in the bailout package. The national Bank of Ukraine to 2018, expects to receive two tranches worth $ 3.5 billion, but the Ministry of Finance expects that the amount of loans may be more.

In addition, at the end of 2017 came to an end the programme of macro-financial support Ukraine with the European Union, which functioned in 2015. Earlier in the framework of Kiev received two tranches of € 1.2 billion of the total 1.8 billion. In 2017, Kyiv expected to receive the last tranche of 600 million euros. However, the EU refused to allocate these funds because of the failure by Ukraine of the requirements. In particular, the Kyiv refused to accept painful for him, the decision to lift the ban on the export of unprocessed timber to Europe.

On the completion of financial support to Ukraine in the fall also said the world Bank (WB), which in 2014 handed over to Kiev by more than $ 5.5 billion. The head of the world Bank Jim Yong Kim during his historic first visit of the head of the organization in Kiev, said that the Bank «has reached the limit of crediting of Ukraine».

The national Bank of Ukraine earlier said that the government should start negotiations with the IMF on a new program of cooperation prior to the expiry of the current at the beginning of 2019 to facilitate payments on the national debt. The government of Ukraine has applied to the EU for new macro-financial assistance program.

But international lenders insist on more reforms and strengthening the fight against corruption. They need to adopt a number of unpopular decisions, including the privatization of state assets, the rise in gas prices for the population, the removal of the moratorium on sale of agricultural land and the establishment of an independent anti-corruption court.

Running in place: the Ukrainian economy has slowed after years of growth© RIA Novosti / Alexei Vitvitskiy in fotobank EU low estimated prospects of Ukraine’s accession to southpo the opinion of the Director of the Ukrainian Institute of policy analysis and management Ruslan Bortnik, despite the difficulties, Ukraine will continue cooperation with international partners. «I think that cooperation will continue, but not at the levels that were planned. Ukraine over the next three years need to return $ 28 billion external debt. To repay those debts, and to restructure without the support of the IMF and Western partners of Ukraine will not, and will not return — this means serious political instability in Ukraine in which the West is also not interested,» — said Bortnik RIA Novosti.

He believes that the West in the future will be to nurture the Ukraine at the level of «life», but a serious investment, which would allow to restore economic growth, can be expected.

© AFP 2017 / Yuri GripasШтаб of the International monetary Fund in Washington, DCRunning in place: the Ukrainian economy has slowed after years of growth© AFP 2017 / Yuri GripasШтаб-apartment of the International monetary Fund in Washington, USA
Blockade Of Donbass

One of the key events that determined the economic development of Ukraine in 2017, the decision on the start of the transport blockade of Donbass.

Running in place: the Ukrainian economy has slowed after years of growth© AP Photo / Evgeniy MaloletkaНа Ukraine found financial losses from the conflict in Demassification the authorities decided to blockade under pressure from the radicals, who in the winter of 2016 began to block trains with coal from the Donbass to the Ukrainian energy sector. The actions of the radicals forced the authorities of the self-proclaimed DNR and LNR to introduce external management at the enterprises of the Ukrainian jurisdiction in the Donbass. The Council of national security and defense of Ukraine has approved the proposal March 15 full freight transport blockade beyond the control of Kiev territories of Donbass. According to the decision of Kiev, the siege will persist until businesses in the DNI and LC will not be back under Ukrainian jurisdiction.

However, the overlap trade with Donbas boomerang hit at the Ukraine. Most affected the energy sector, local teploelektrotsentrali were forced to abandon the cheap anthracite from the Donets basin and to switch to more expensive imported coal, particularly from the United States. The government was forced to enter into several months of extraordinary measures in the energy sector, to ensure the normal operation of the integrated power system in the conditions of shortage of coal.

According to estimates by the Deputy head of the national Bank of Ukraine Oleg Churia, the negative effect of trade balance of Ukraine from the termination of trade with uncontrolled Kiev territories is estimated at $ 1.8 billion in 2017, an additional 0.5 billion, Ukraine could lose in 2018. According to the Cabinet’s decision about the trade blockade of Donbas, Ukraine in 2017, lost 1% of GDP.

The Association earned

In 2017, ended the four-year history of the ratification of the Association agreement with the EU, the trade of which provides for the establishment of a free trade zone (FTZ).

Running in place: the Ukrainian economy has slowed after years of growth© RIA Novosti / Ilya Petliurite in the Bank»Gazprom»: the full satisfaction of the claim to «Naftogaz» would have ruined Ukrainedeputy finally entered into force on September 1 after the approval of the document in July, the Council of Europe. The process of ratification of the document was delayed for four years due to the delay of the ratification by the Netherlands. Amsterdam agreed to approve the document in exchange for the adoption of further clarification that the agreement does not give Ukraine the prospect of EU membership and guarantees of collective security or other military assistance. It was also noted that the agreement does not give the right to freedom of movement of labour between Ukraine and the EU.

Final ratification of the agreement from a legal point of view was a mere formality, as most of it is already well established on a temporary basis – the agreement is partially in force from 1 September 2014, as part of the FTA started on 1 January 2016.

To date, FTA has not yet revealed its full potential, although the EU and warned that this would require about 7 years. Despite the fact that the EU has established itself as the main partner for Ukraine, while it is not possible to cover the losses that Kiev suffered from the rupture of economic ties with Russia. According to Ministry of economy of Ukraine, for seven months of the second year of the action the FTA, the EU’s share in trade turnover with Ukraine increased in comparison with the similar period of last year on 1,2% — to 40%, the share of Russia declined by 0.1% to 9.5%.

On the way to energy efficiency

Traditionally, a significant impact on the economy of Ukraine was provided by the situation in the energy sector. The Cabinet of Ministers of Ukraine in 2017, announced plans to 2020 to achieve full energy independence and even to turn from a gas importer into an exporter.

Running in place: the Ukrainian economy has slowed after years of growth© RIA Novosti / Maxim to Aminopherase in fotobanka: in «Naftogaz» confident that the Russian debt is to give not pricesabana for the second year lived without Russian gas by importing it in reverse from the EU and increasing its own production. In the first 10 months of 2017 Ukraine’s largest gas company, the state «Ukrgasdobycha» (controlled by «Naftogaz») increased extraction of natural gas by 4.2%, or 513 million cubic meters of gas — up to 12.6 billion cubic meters.

Only gas company of Ukraine – private and public — for the first 10 months of the current year produced 17.3 billion cubic meters. In Kiev expect that the total gas production in Ukraine by 2020 will reach 27 billion cubic meters, while the company should reach $ 20 billion.

Kiev also continued to work on getting rid of dependence on supplies from Russia of other energy resources – nuclear fuel for Ukrainian nuclear power plants and coal for power generating companies. However, so far the main supplier of fuel for Ukrainian NPPs is the Russian company TVEL, the American Westinghouse in 2017, supplied fuel for only three of the Ukrainian unit of 15. Thus in 2017, State nuclear regulatory Inspectorate of Ukraine issued a permit for operation of Westinghouse fuel on two blocks.

Running in place: the Ukrainian economy has slowed after years of growth© REUTERS / Jonathan ErnstУкраина came under US sanctions. Why trump finishes Piosenkarze of the Russian Federation in 2017 remained the main supplier of coal to Ukraine. According to the Ukrainian state statistics service, in 10 months, 2017 Ukraine almost doubled — up to 2,151 billion dollars — increased imports of coal and anthracite compared to the same period last year. While more than half of the imports came from Russia – 55,7%, or $ 1.2 billion, in the second place on volumes of supplies of the United States, they account for 25% of production or 546,8 billion. In particular, to increase the share of U.S. imports was due to the signing of the contract between the Ukrainian company «Centrenergo», the controlling stock of which is owned by the state, and American Xcoal Energy & Resources on the supply to Ukraine 700 thousand tons of coal in 2017.

The dispute in the billions

Another important development was made in late December, the verdict of the Stockholm arbitration on the dispute «Gazprom» and «Naftogaz» in connection with the contract for the supply of Russian gas to Ukraine. The court obliged «Naftogaz» to pay «Gazprom» $ 2 billion for gas already delivered, and also reduced annual contract amount of purchases up to 5 billion cubic meters of gas, but left the condition «take or pay» for 80% of this amount, that is 4 billion cubic meters. According to the report Gazprom to buy its gas in these volumes Kiev is required starting in 2018.

Running in place: the Ukrainian economy has slowed after years of growth© REUTERS / Valentyn Ogirenko/File PhotoЕстественный selection: the Italians have left Ukraine without gas»Naftogaz of Ukraine», in spite of this, considered the court decision a victory and praised his positive result in a $ 75 billion, including in this amount all that he could pay to «Gazprom» in the most negative for the Ukrainian state-owned companies the court’s decision. In particular, the savings accrued due to the retroactive reduction in the price of gas for the second quarter of 2014 to $ 352 from $ 485 per thousand cubic meters. «Naftogaz» also said that the court cancelled the ban on re-export of Russian gas and the binding gas prices to oil products.

«Gazprom» and «Naftogaz of Ukraine» the legal proceedings in the Stockholm arbitration court in June 2014. The bulk of the claims of «Gazprom» to «Naftogaz» in the framework of the dispute on the supplies went to penalties for arrears of gas at the contractual rule of «take or pay» (take or pay). In addition, Gazprom demanded to pay the debt for gas supplied in may and June 2014, and penalties for late payment. «Naftogaz» demanded retroactive changes in gas prices, recovery of overpayments for the unrevised prices and the abolition of the ban on the resale of gas under contract.

© AFP 2017 / Sergey BobokМанометр compressor station oil and gas company «Naftogaz of Ukraine»Running in place: the Ukrainian economy has slowed after years of growth© AFP 2017 / Sergey BobokМанометр compressor station oil and gas company «Naftogaz»
The increase in wages

In early 2017, the Ukrainian authorities took the unprecedented increase in the minimum wage, which was doubled — up to 3,2 thousand UAH (about $ 120), also in the fall was adopted pension reform.

An increase in wages, the government tried to improve the financial situation of the poorest segments of the population, living standards which dropped severely after the crisis of 2014-2015. The cumulative inflation during this period reached almost 70%, while the national currency depreciated more than three times, whereas the minimum salary is not increased.

Running in place: the Ukrainian economy has slowed after years of growth© RIA Novosti / Igor Maslowprice in fotobanka such people. Why Kiev does not recognize the residents of Donbass ukrainenational reform was adopted in Ukraine in the framework of cooperation with the IMF, which sought to reduce the expenditure of scarce state budget for pension payments. The government reform in addition to increasing pensionable service from 1 January 2018 from 15 to 25 years has increased the minimum pension, which since October has increased from 1312 to 1452 UAH (from 49 to 54 dollars). Was improved pension benefits in proportion to length of service pensioners. Total increase touched 9 out of the 12 million Ukrainian pensioners.

According to Ukrainian experts, the Executive Director of the International Fund blazer Oleg Ustenko, increasing benefits to the population gave only a temporary effect, because in the end they ate the inflation that they themselves have strengthened.

By the end of 2017, the growth of prices in Ukraine by more than two times higher than initial government forecasts. The state budget was calculated based on inflation of 8.1%, but according to the state statistics service, in November compared with the beginning of the year inflation was 12.5%, and the updated forecast of the government, it is expected to increase to 12.9%.

«I believe that the people we live badly and to survive even the increased minimum wage difficult. When you raise the incomes of the poor, you have to understand that these people will not spend the money on luxuries, they buy more products and medicines. It turns out that these same vulnerable people themselves spurred inflation,» — said Ustenko in comments to RIA Novosti.

The Advisor to Prime Minister Miklos believes raising the minimum wage is a positive step, as it is possible to reduce the level of shadow economy.

Running in place: the Ukrainian economy has slowed after years of growth© AP Photo / Czarek SokolowskiКлимкин told about a million of Ukrainians, «saving the Polish economy»In the next year the authorities plan to raise the minimum wage. Earlier the President of Ukraine Petro Poroshenko promised that on the financial results of the three quarters, the government could raise salaries by 28% — to 4,1 thousand UAH (151 dollar).

At the same time, the economist Ustenko believes that, in the moment, in the Ukrainian budget has no money for that promotion, he connects the promises of the authorities with the upcoming elections.

Construction on the roads

The Ukrainian government for the second year implementing the program of large-scale reconstruction of roads. According to the state Agency of highways («Ukravtodor»), in 2005, the state of Ukrainian roads is rapidly deteriorating due to underfunding of repair. In the end, as at the end of 2016 in Ukraine, more than 97% of roads were in poor condition.

In 2017 the budget will be 30 billion (1.1 billion dollars). In the state budget for the year 2018 for the reconstruction of roads provides about 44 billion hryvnia ($1.6 billion).

As stated at the final press conference for the year, the acting head of «Ukravtodor» Slawomir Nowak, this year in Ukraine renovated the five-year record 2.1 thousand kilometers of roads. For comparison, he cited figures 2014, when it was renovated only 102 kilometres of road ways.

Running in place: the Ukrainian economy has slowed after years of growth© RIA Novosti / Vitaly Podwyzki Keep the hat wider