Economic History of Ukraine

From Catherine the Great 1762 until the end of the Russian
Empire 1917

When Catherine II. was elected Empress of the Russian Empire in

1762, the political opposition vanished within few years. Under her
command, the Russian army conquered Southern Ukraine with its
highly fertile black earth soil to establish a “granary” and export base
for the Russian Empire. On the shore of the black sea, Odessa was
founded in 1794. Its port became the second most important trade
center in the czardom behind the port of St. Petersburg. In
Southeastern Ukraine, rich resources, coal at the Donbass and iron ore
at the Dnjepr, made the heavy industry grow into the most important
engine of industrialization in Russia, which furthermore attracted many
Russian workers to immigrate to the Ukrainian region around the
Donbass and Dnjepr. In Kiew, trade and administration took place and
the national railway conveyed goods to and from the capital.

Even though modernization brought more welfare in the cities, mainly

rich people and Russians profited. To illustrate, in 1897, only one out of
ten citizens of Odessa was Ukrainian. Most of them kept on being
farmers and many of them lived in poverty, partly due to their
illiteracy. Twenty years later, the agrarian revolution and growing
opposition led to the end of the Russian Empire. On January 12, 1918,
the Ukrainians proclaimed their independency. During following years,
before cofounding the Soviet Union, many of today’s identities have
been established; the currency Hrywnja, the nation anthem Schtsche
ne wmerla Ukrajina or the Flag of the Ukrainian Trade Fleet.

From independency 1918 until exit from USSR 1991

During World War II, Ukraine is the central stage — every fifth
Ukrainian dies during the brutal battles followed by massive economic
decline. The war plan of the Nazis included the deportation of over two
million Ukrainians and the killing of all Jews. The Nazis let the inferior
Ukrainians work for them, with the cruel objectives of keeping
education and birth rate low among the local population. After the war,
widespread poverty partly impeded the process of rehabilitation. Cities
and heavy industry have been reconstructed; however, agriculture and
consumer goods struggled to rise again.

Ukraine can begin to expose its economy to more foreign

competition and investment.
When Ukraine became independent in 1991, Economically, Ukraine has
grown along with the region. As such, growth rates have not been low,
but they come after the economically devastating 1990s and are not
built on a sustainable foundation. For years Russia provided Ukraine
with underpriced gas while Ukraine’s export prices increased rapidly.
Over the decades Ukraine, however, grew dependent on oil and gas
coming from Russia, at almost no cost. Today, 70 percent of gas
consumed in the country is imported. But the terms of trade
improvements this provided, like other economic windfall gains, are
fortunate only if well handled. Unfortunately, Ukrainian economic
policy was unable to make proper use of the windfalls of the 2000s.

UKRAINE AFTER THE INDEPENDENCE

In 1991 Ukraine was one of the poorest Soviet republics. Statistics for
the time are notoriously uncertain, but the best one’s available show
Ukraine’s GDP at just $1,307 per capita. Only Azerbaijan, Georgia,
Kyrgyzstan, Tajikistan, and Uzbekistan lagged behind Ukraine; even
Moldova and Turkmenistan, generally regarded as very poor Soviet
republics, were ahead of Ukraine. It was an agrarian country—the
breadbasket of the Russian empire.
Ukraine eventually became dependent on oil, minerals, and later
relatively cheap gas from Russia. It turned high-quality but almost free
energy and raw materials into processed goods that were badly
overpriced on Soviet markets relative to their world-market quality.

Ukraine’s economy contracted annually between 9.7 and 22.7 percent

in 1991–1996. The country experienced hyperinflation and an
exceptionally huge production decline for a country not ravaged by a
major war. Official GDP collapsed by almost half from 1990 to 1994,
and slow decline continued throughout the decade. Economic growth
would not resume again until 2000. The budget deficit was, at 14.4
percent of GDP, exceptionally large. Barter and the use of surrogate
moneys and foreign currencies prevailed. Ukraine had introduced a
sovereign currency, the hryvnia, but it was little used.

GROWTH AND EXPORT

Between 2001 and 2008, the Ukrainian economy picked up

significantly. Many of Ukraine’s large-scale capitalists—the oligarchs—
are former Soviet-era industrial managers who succeeded on a grand
scale when industries were privatized. Their wealth was originally
based on a traditional, simple formula: convert cheap energy and raw
materials into metals and manufactured goods.

High export revenue from the traditional industries of metals,

metallurgy, engineering, chemicals, and food was also a factor.
Crucially for Ukraine’s survival, between 2001 and 2008, as metals
and chemicals prices boomed on the back of fast international
economic growth while the price of gas imported from Russia remained
low, terms of trade improved by 50 percent. Monetization also helped
to drive this boom, as the ratio of credit to GDP grew extremely fast—
from 7 to almost 80 percent over just several years.
From 2000 to 2007, Ukraine’s real growth averaged 7.4 percent and
was thus very similar to Russia’s. In both countries, this growth was
driven by domestic demand: orientation toward consumption, other
structural change, and financial development. In Ukraine, domestic
demand grew in constant prices by almost 15 percent annually.

IMPROVING TERMS OF TRADE

Ukraine’s traditional revenue-earning pattern has been to turn

underpriced often Russian materials into world-market-priced
commodities.

In 2000, metals and mineral products accounted for half of Ukraine’s

exports. Adding agro food and chemicals took the proportion to just
over 70 percent. In 2008, the shares remained quite similar, with agro
food increasing from 11 to 16 percent. Steel export unit value grew
more than four times between 2000 and 2008, while steel export
volume grew only little between 2000 and 2004, and then stagnated.

Ukraine’s economy and its growth suffered from nationalism

and inefficiency.
The success stories of Ukrainian exports, as measured by the Balassa
index, consist of railway equipment (much in demand in Russia), iron
and steel, fertilizers, animal oils, and oil seeds.  Agribusiness is based
on Ukraine’s black earth, some of the world’s most fertile agricultural
soil. Ukrainian agribusiness targets mass production of basic grains
(and chickens), not boutique production of very high-value ecological
produce and other specialties, increasingly demanded by neighboring
European consumers.

Inevitably from 2000 to 2009, the share of manufactured goods in

Ukraine’s exports declined from 45.1 to 36.1 percent. This is not
deindustrialization; it is normalization. At the same time the share of
food and live animals increased from 5.6 to 15.2 percent. The share of
exports of services, largely transit fees, increased from 15.1 to 19.9
percent.
The country does have some high value-added export commodities in
aircraft components, helicopters, electrical machinery, and a small
volume of pharmaceuticals.

MISSTEPS AT HOME

Ukraine not only failed to diversify its exports but also mismanaged its
domestic economy. Since 1992 Ukraine has had just one year, 2002,
with a balanced budget. Income growth has been huge, and the ratio
of domestic savings declined as consumption boomed. Since 2001
annual growth in average monthly earnings has always surpassed
consumer price inflation, until 2008 quite frequently by more than 20
percentage points and never much below that. Such income growth
was supported by the country’s high export, especially steel, prices.

As imports were liberalized in the 1990s, consumers and investors

alike preferred the superior quality, choice, and brands available from
world markets. By the 2000s an increasing share of them could afford
foreign goods. Cheap imports from Asian and other countries also
became available. The trade balance has been consistently negative
since 2005, and the current account has followed since 2006.

Net inward foreign direct investment (FDI) has been positive since
1992, varying in 2005–2010 between $5 and $10 billion annually. But
most foreign direct investment has gone to closed-sector services such
as retail trade and finance, while the industries inherited from the
Soviet Union were privatized to domestic owners and are controlled by
oligarchs.

In a nation of 46 million inhabitants, the pensions of 14 million

pensioners grew from 9.2 percent of GDP in 2003 to almost 18 percent
in 2009. This is one of the heaviest pension burdens globally, and
negative demographics will continue to worsen the situation if needed
measures, like increasing the general pension age, are not taken.
DEBT BUILDS

Financial crisis that rocked the international economic system in 2007

to 2008. Ukraine’s lack of sound domestic economic structures and
debt accumulation made it especially difficult for the country to
weather the financial storm.

Ukraine’s lack of sound domestic economic structures and debt

accumulation.
Ukraine is not particularly deeply indebted; its debt stock has grown
rapidly. Ukraine has since independence received important official
development assistance. Gross reserves have grown from less than a
month’s imports to around five months’ worth from 2005 to 2010, still
a modest level. Public and private foreign debt has recently risen fast
from more than $10 billion in 1997–2002 to over $100 billion in 2008–
2009. The 2008 level was 56.4 percent of GDP and 118.7 percent of
exports.

In 2009, as GDP declined and the hryvnia weakened, external debt

stock was 91.5 percent of GDP and 191.6 percent of annual exports—
clearly an unsustainable level for Ukraine. In late 2011, Ukraine’s
official reserves were some $30 billion. Paying back its debt—barring a
further accelerated depletion of foreign exchange reserves—will be
close to impossible without fresh foreign finance, preferably in the
form of disbursements from the IMF.

A two-year IMF stand-by arrangement, put in place in 2008, provided

exceptional access to financing that was crucial in helping Ukraine
through the Great Recession. In particular, it helped to prevent a
banking crisis. In many respects, however, Ukraine reneged on its
commitments, and the program went off-track very soon, as a 2011
IMF evaluation concludes. This holds for fiscal, exchange rate, and
monetary policies, but in particular for the energy sector.
Unfortunately for Ukraine, its current domestic industry is not poised
to help solve its debt problem. Ukraine, like Russia and Central
Europe, has been a limited export success, as its share of world direct
exports rose close to (a still very modest) 0.2 percent of GDP in 2000–
2008, at a time of thriving international trade overall. Ukraine
benefited from originally very low labor costs, slightly lower tariffs, and
high prices of its main export goods, but at the same time faced
notably higher non-tariff barriers.

THE BUSINESS ENVIRONMENT AND ENTERPRISE

PERFORMANCE SURVEY
In Ukraine almost all companies complain about tax rates and
corruption. Fewer firms than before report unofficial payments but the
bribe tax, the share of bribes in annual sales for all firms, is almost
unchanged at 1.6 in 2005 and 1.5 percent three years later. This
means that those firms reporting unofficial payments paid larger
amounts: 3.2 percent of annual sales in 2005 and 6.3 percent in 2008.

These estimates are supported by a detailed micro level analysis by

Gorodnichenko and Peter. They found that though Ukrainian public
sector employees received 24–32 percent less in wages than their
private sector colleagues, there was no difference in consumption and
asset-holding levels. Their lower-bound estimate for the extent of
bribery in Ukraine was about 1 percent of GDP.

MOVING FORWARD

Domestic prices must be set at a realistic level; much needed greater

efficiency cannot come from explicit and implicit subsidies. To continue
evolving Ukraine needs access to domestic long-term funding. The
current combination of dependence on foreign funding and lost
international credibility is nothing short of lethal. The oligarchic
structure of the economy can only be counterbalanced by an economy
more exposed to foreign competition and investment. Europe, the
United States, and the Euro-Atlantic community will continue to
engage with Ukraine.

From economic shock 1992 until financial crisis in 2007

The situation stabilized towards the end of the nineties, after the GDP
had a massive decrease of 60% between 1992 and 1995. The
millennium change brought long-desired upturn and the GDP grew by
around 7% annually ever since. After the change of government in
2004, whereby Juschtschenko was elected as president, foreign
investors drew more trust and investments in agricultural area became
more attractive. With the finance crisis starting in 2007, the currency
Hrywnja and the banking sector were destabilized and the International
Monetary Fund granted a 16.4 billion loan in three tranches, of which
the third one has never been disbursed due to non-fulfilment of
conditions by the Ukrainian government. Nevertheless, state
bankruptcy had been averted.

Economy today and its potential in the future

The Ukrainian economy has great potential due to its attractive sales
market, an improving educational system and many different resources
like agriculture are, oil, iron and coal. Additionally, the position
between Western Europe and Russia is strategically advantageous, as
Russian gas pipes connected to Europe run through Ukrainian territory.

To conclude, Ukraine has a remarkable economic basis but nonetheless

still feels the aftereffects of its history and actual problems, which
results in Ukraine being one of the poorest countries in Europe
measured on per capita income.
Gross Domestic Product (GDP) of Ukraine

Ukraine possesses rich farmland (the major crops are wheat, rye,
flax, corn, barley, sugar beets, sunflowers and potatoes), vast mineral
resources (iron, manganese, coal, anthracite, aluminum, mercury,
nickel, natural gas, oil, zinc, titanium and bauxite), a well-developed
industrial base (steel, tractors, machinery, construction materials,
chemicals, fertilizers).And labour, highly trained. Yet, due to
underdeveloped infrastructure, corruption, bureaucracy and political
turmoil, the economy is still in poor condition. On the production side,
services are the economy's largest sector and account for nearly 68
percent of total GDP, the most important of which are: domestic trade
(14 percent) and accommodation and food services (13 percent).
Industry accounts for 22 percent of GDP and is divided by
manufacturing (11 percent); and agriculture (10 percent).
2009
Ukraine was hit heavily by the late-2000s recession, the World Bank
expects Ukraine's economy to shrink 15% in 2009 with inflation being
16.4%.
The deficit of Ukraine's foreign trade in goods and services January
through September 2009 was estimated at $1.08 billion, which was
9.5 times down on the same period in 2008, export of goods over the
period decreased by 48.7%, to $27.478 billion, while imports fell by
53.5%, to $31.570 billion; export of services dropped by 23.2%, to
$6.841 billion, while imports were down by 19.9%, to $3.829 billion
2010
 due to the recovery of the world economy and increasing prices for
metals. Ukraine's real GDP growth in 2010 was 4.3%, leading to per-
capita PPP GDP of 6,700 USD.
2011
The labor market in Ukraine has evolved gradually. Having passed first
from an agricultural state to an industrial one during the time the
country was part of the Soviet Union, Ukraine started on the path of a
service-oriented economy after the breakdown of the USSR, as the
national labor market increasingly become oriented toward such
industries as tourism, entertainment, and leisure. Today, more than
half the national labor force is involved in the service sector.

2012
Ukraine had a strong economic recovery in 2010–11, following the
deep recession ensuing from the 2008–09 global crisis. However,
recovery is now slowing. Lower demand for Ukraine’s exports and slow
credit growth are weighing on economic growth, which is projected at
3 percent this year. Inflation is projected to rise to 7.4 percent during
the year, reflecting wage pressures and rising food prices. Weakening
external demand is expected to widen the current account deficit to
6.5 percent of GDP.

2013
Due to positive contribution of Agricultural production due to late and
record harvest. One expenditure side, real private final consumption
was the major driving force of real GDP dynamics as it made a positive
contribution at 5.33 pp it increased by 7.8% due to higher real
disposable household income.
2014
The GDP of ukraine fell -6.55% in this year. The GDP figure in 2014
was 133.503 million. In this year crisis erupted when russian special
forces occupied Ukraine’s crimean peninsula, claiming it was protecting
its port access to the black sea. Which created military conflict, That
led to the decrease or mismanaged budget and forced Ukraine to ask
for financial help.
2015
The “Big Escalation” of military conflict in the east of the country.
Which pushed economy to a larger recession than previously expected.
It led to start hyrunia depreciation, contraction of domestic demand
where Ukraine's economy shrank by 6.8% in 2014, and this continued
with a 12% decline in GDP in 2015
Ukraine's economy had shrunk by 10.4% in 2015. The National Bank
of Ukraine had expected a further decline of 11.6%, and the World
Bank anticipated a 12% shrinkage. In 2014 and 2015 the hryvnia
(Ukraine’s currency) lost about 70% of its value against the U.S.
dollar.
Ukraine saw a decline in exports by 30.9% decline in exports mainly
because of the decline in production output in Donetsk Oblask and in
Luhansk Oblast ( Regions of Donbass). These regions were responsible
for 40.6% of the total export-decline rate.
$2.526 billion entered the Ukrainian economy via remittances in 2015
where In this year, food and other agricultural products (worth $13
billion), metallurgy ($8.8 billion) and machinery ($4.1 billion) made up
most of the Ukraine's exports with trade partners from 217 countries.
Exports from Ukraine in 2015 decreased by 29.3% to $38.135 billion
and imports were 31.1% down, to $37.502 billion.
2016
Ukrainian economy is showing sign of stabilization, after the political
economic tension.
In February 2016 historian Andrew Wilson assessed progress in
reducing corruption as poor as of 2016. Aivaras Abromavicius,
Ukraine's then Minister of Economy and Trade, resigned in February
2016, citing ingrained corruption. In October at a conference for
foreign investors, corruption and lack of trust in the judiciary were
identified as the largest obstacles to investment.
In 2016, for the first time since 2010, the economy grew by more than
2%. A 2017 World Bank statement projected growth of 2% in 2017, of
3.5% in 2018
The bold reforms of 2014-2015 and a de-escalation of the conflict in
September 2015 helped to stabilize confidence. As a result, real GDP
has stabilized, with very weak recovery. with the growth in
manufacturing, domestic trade, transport and storage. The domestic
demand began to recover mildly in the first half of 2016 while external
demand continued to decline. Broad-based recovery and growth have
been held back by a number of factors, including weak external
demand, the continuing conflict in the East of Ukraine, and limited
reform momentum, all of which have held back a strong turnaround in
investor confidence and productivity. Although some reforms have
advanced in the last few months, a broad-based turnaround in reform
momentum has not yet replaced the slowdown in reforms since
September 2015.
2017
The Ukrainian economy has stabilized years after the Dignity
Revolution, and is ready to grow.
The military conflict has stabilized, macroeconomic stability has been
achieved, the economy has begun to grow and the country continues
to be supported by the West. The nation adopted visa-free system and
began reforms in healthcare, education, and pensions. Ukraine’s return
to the eurobond market is one of the major factors that launched of
ProZorro.sales.
Progress is easily taken for granted, so what Ukraine has done over
the past three years is worth remembering. An unsustainable 10% of
GDP budget deficit has now been reduced to around 3% of GDP,
primarily by cutbacks in public spending. Public debt stood at 80% of
GDP, whereas the IMF worried that it would spiral out of control. The
government has sensibly reduced the exorbitant payroll tax from 45
percent to 22 percent.
Due to a necessary devaluation of the Hryvnia, foreign payments have
reached balance, and the exchange rate has stabilized on the market.
Ukraine's international gold and currency reserves rose from $5 billion
in February 2015 to $15 billion, sufficient to liberalize the strict
currency controls gradually. Ukraine accomplished this while Russia,
through draconian trade sanctions, deprived it of one-quarter of its
prior exports.
Ukraine has carried out major structural reforms. The unification of
energy prices deprived corrupt gas traders of up to eight percent of
GDP. The e-declarations of wealth will deal a major future blow to
corruption. The ProZorro public procurement system does so as well,
and so do deregulation and improved corporate governance.

2018
This period is where Ukraine is number 59 in the ranking of GDP of the
196 countries.
Ukraine's economy continued its gradual growth for the third year in a
row after the crisis. Ukraine's Gross Domestic Product accelerated to
3.3 percent compared to 2017, the highest rate since 2011.
Remittances to Ukraine in first nine months 2018 increased by 22.7
percent over the same period of pervious year, following an overall 23
percent growth rate in 2017.
Real salary in the country increased significantly during 2016-2018
reaching pre-crisis level of 2013. People with average salary in the
country as of December 2018 could cover minimum costs of living for
three persons, while people with minimum pension or minimum
unemployment payment cannot cover more than half of the needs of
one person.
Ukraine's economy is growing, but vulnerability and poverty rates
remain high, especially in Donbas oblasts. The most vulnerable socio-
demographic groups of people could be elderly people living alone or in
couple, especially with minimum pension payment, as well as
unemployed people, especially without breadwinner in the HH.

Yea GDP GROWTH ANNUAL CHANGE

r
2009 117.13 - 14.76 % - 17.06 %
2010 136.013 3.83 % 18.59 %
2011 163.16 5.47 % 1.63 %
2012 175.781 0.24 % - 5.23 %
2013 183.31 - 0.03 % 0.27 %
2014 133.503 - 6.55 % - 6. 53 %
2015 91.031 -9.77 % - 3.22 %
2016 93,356 2.44 % 12.21 %
2017 112.19 2.47 % 0.03 %
2018 130.832 3.34 % O.87 %
 Chart Title

93356

0 117.13 136.01 163.16 175.78 183.31 133.5 91.03 112.19 130.83

Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Gross Domestic Product (GDP) of Ukraine

Yea GDP GROWTH ANNUAL CHANGE

r
2009 117.13 - 14.76 % - 17.06 %
2010 136.013 3.83 % 18.59 %
2011 163.16 5.47 % 1.63 %
2012 175.781 0.24 % - 5.23 %
2013 183.31 - 0.03 % 0.27 %
2014 133.503 - 6.55 % - 6. 53 %
2015 91.031 -9.77 % - 3.22 %
2016 93,356 2.44 % 12.21 %
2017 112.19 2.47 % 0.03 %
2018 130.832 3.34 % O.87 %
2a. How does a country measure economic development and
economic growth?

Ukraine became an independent state after the collapse of Soviet Unio

n in 1991. Since that time the country has passed through a process of
significant political, economic, and social change. Having experienced
difficult economic times during 1991-1995 (the break down of integrat
ed connections with the post-Soviet business environment, hyperinflati
on, privatization issues, and national business system formation), the
Ukrainian government successfully established a national currency (hry
vna) and overcame high inflation by the late 1990s.
Considering the economic development of Ukraine in the past decade,
selected macroeconomic indicators show the national economy perfor
mance outcomes during this transitional process. For instance, GDP sh
owed a positive dynamic starting from 2000 (5.58% annual change) u
ntil 2009 when the GDP dropped by 15.1% which was a direct consequ
ence of the world financial crisis. Inflation in Ukraine remains relatively
high (10-20 percent increase annually with the lowest level in 2002 (0.
7%) and the highest ones in 2000 (28.2%) and 2008 (25.2%). The val
ue of the current account balance had a surplus during 1999-2005 peri
od with the highest value in 2004 (6.9 billion US dollars) and a deficit
during 2006-2009 with the lowest value in 2008 (12.8 billion US dollar
s). Economic instability has a direct impact on demography. The popul
ation has been steadily declining every year, dropping from 52 million
people in 1992 to 45.7 million in 2009 1.

Economic growth in Ukraine picked up to 3.6 percent in the first half of

2019 and 4.2 percent in the third quarter driven by a strong
agricultural harvest and consumption growth from higher wages,
remittances, and a resumption of consumer lending, according to the
World Bank’s latest Ukraine Economic Update. At the same time,
investment growth has not yet picked up to levels needed for stronger
and sustained economic growth.

2b. Using your data, comment on the economic development

process of your assigned countries over a period of 10 years.

 The economic development of Ukraine country is the sum of

value added by all resident producers plus any product taxes
(less subsidies) not included in the valuation of output plus net
receipts of primary income (compensation of employees and
property income) from abroad. Data are in current U.S. dollars.
 GNI, calculated in national currency, is usually converted to U.S.
dollars at official exchange rates for comparisons across
economies, although an alternative rate is used when the official
exchange rate is judged to diverge by an exceptionally large
margin from the rate actually applied in international
transactions. To smooth fluctuations in prices and exchange
rates, a special Atlas method of conversion is used by the World
Bank. This applies a conversion factor that averages the
exchange rate for a given year and the two preceding years,
adjusted for differences in rates of inflation between the country,
and through 2000, the G-5 countries (France, Germany, Japan,
the United Kingdom, and the United States). From 2001, these
countries include the Euro area, Japan, the United Kingdom,
and the United States.
 Ukraine gnp for 2018 was $112.50B, a 16.93% increase from
2017.
 Ukraine gnp for 2017 was $96.21B, a 2.57% decline from
2016.
 Ukraine gnp for 2016 was $98.74B, a 13.11% decline from
2015.
 Ukraine gnp for 2015 was $113.65B, a 25.76% decline from
2014.

2c. Examine and identify the factors that might have caused the
rise and fall of the economic potential of the country.
The factors that might have caused the rise and fall of the economic
potential of the country is that the Business environment marred by
corruption (notably in the justice system), oligarchy and monopolies,
weak property rights, a lack of competition and inefficient public
services, Low economic diversification; sensitivity to weather and
commodity prices
Declining demographics; regional inequalities featuring poverty and
the informal sector, Credit constrained by doubtful loans (49%) and
high real interest rates and Managed float of the hryvnya; continued
restrictions on capital movements.
As in 2019, activity will be driven primarily by household consumption
(3/4 of GDP). Against a backdrop of emigration and a shortage of
skilled labour, but also because of a continued (albeit smaller) increase
in the minimum wage, wages will continue to rise. Households will also
benefit from expatriate remittances, which make up 10% of their
income. An estimated 5 million Ukrainians, or one-quarter of the
labour force, work abroad, mainly in Poland, but also in Hungary, the
Czech Republic and other countries. Inflation may be lower due to the
easing of energy and food prices linked to the decline in world prices,
while the hryvnya is expected to be resilient. Consumption will again
benefit trade and freight transport. Investment is expected to grow
again, but its GDP share (17%) is stagnating due to the conflict with
Russia, the poor business climate and credit, which is constrained by
high cost and the amount of impaired loans (49% of outstanding
loans, although 90% covered by provisions). Despite monetary policy
easing in 2019, with the key rate reduced to 15.5%, the average
interest rate on hryvnya loans was 20.6% in October 2019 compared
with 4% for those in foreign currencies, which still make up 40% of
the outstanding amount, despite a decrease in their distribution. The
contribution of trade is set to remain negative. Exports will continue to
be affected by low prices for agricultural products (40% of total
exports), iron and steel (25%) caused by sluggish global demand.
However, this price effect should be partially offset by an upturn in
shipments due to a further sharp increase in harvests for the
2019/2020 season that will benefit agriculture (12% of GDP).
Conversely, strong domestic demand will drive imports, particularly of
consumer goods and machinery.

2d. Examine why an increase in the poverty within your

countries to the economic development and growth.
The reason of increasing the poverty of Ukraine country is that Despite
its fertile farmlands and strong metals sector, Ukraine suffers from
high unemployment rates and growing poverty levels. Unemployment
increased from 7.2 percent in 2013 to 9.1 percent in 2015, and
revenues declined by 5.4 percent in the first half of 2016. Although
substantial agricultural harvests have led to a slight economic
recovery, poverty rates continue to increase.

Government Corruption in Ukraine

Ukraine ranked 130 out of 180 countries surveyed in the 2017 Corrupti
on Perceptions Index. Civil servants receive paltry salaries and often re
sort to bribery for personal and career growth. Political parties rely on l
arge private contributions from wealthy donors, so legislation tailors m
ore to the upper echelons of society.
Within the state-run healthcare system, patients make ‘donations’ agai
nst their will in order to receive vital medical services. Futhermore, pur
posefully intrusive regulatory inspections, cumbersome barriers to mar
ket entry and rampant extortions in the judicial system discourage you
ng Ukrainians from taking entrepreneurial risks. 
Although the government created The Anti-Corruption Bureau in 2014,
a plethora of transparency initiatives have yet to be implemented. Teti
ana Chornovol, the former Commissioner for the Bureau, confided that
“there is no political will in Ukraine to carry out a hard-edged, large-sc
ale war against corruption.” Indeed, Ukrainian prosecutors reluctantly
pursued an investigation into a former president’s alleged stealing of $
7.5 billion, a reminder that rules do not apply to those in power.

Russian Aggression
Russia’s illegal seizure of Crimea in March 2014 deprived Ukraine of th
e valuable peninsula, which harbors significant natural gas fields and b
oasts a dynamic tourism industry. The country lost 4 percent of its GD
P in the immediate aftermath of the invasion, and the pursuant violenc
e in eastern Ukraine has weakened foreign direct investment.
The conflict in the region cost 10,000 civilians their lives and left many
more without shelter. Unable to support the growing number of refuge
es, the Ukrainian government ceased to pay pensions to these internall
y-displaced people until they have been sufficiently registered among t
he displaced. Anxious about the uncertain, volatile environment, busin
esses have fled to the Western and Central provinces, causing a sharp
drop in production in the East and furthering intrastate inequalities.

Weak Infrastructure Impacts Ukraine Poverty

The metallurgical sector struggles to compete in the global economy b
ecause of outdated production models developed back in the Soviet er
a. Similarly, the agricultural industries are constrained by low producti
vity and restrictive laws on land ownership, a sign of the ineffective tra
nsition from socialism to capitalism. Property ownership is weakly prot
ected as evidenced by Ukraine’s rank of 110 out of 125 countries in th
e 2018 International Property Rights Index.
The domestic market continues to rely on government intervention, wh
ich creates unfavorable conditions for foreign investors. Although the g
overnment is doing its best to rectify this by exempting foreign investo
rs from customs duties. Recent trade restrictions by Kazakhstan, Belar
us and Russia incurred noticeable harm on workers in its export-orient
ed industries. Ukraine has yet to fully adapt to the modern economy.

Looking Ahead
More cooperation with the European Union and integration with Wester
n economies will improve the efficiency and transparency of Ukraine’s
economy. On Sept. 14, 2018, Kiev and Brussels signed a memorandu
m that committed the European Commission to an assistance program
for Ukraine worth up to one billion euros. The package will help the Uk
rainian government pay off its debts and advance meaningful economi
c reform. More importantly, the memorandum shows that Western po
wers care about alleviating poverty in Ukraine and improving the natio
n’s economy.
2e. Why is the achievement of the higher economic growth
should be a priority of developing and developed economics?
The reason why achievement of higher economic growth is a priority
because Ukraine have experienced and pull out the “Great Recession”
therefore the country knows that what areas or factors are affected
such as high rates of unemployment, lost homes, etc. But when
Ukraine prioritizes economic growth the country may open and create
jobs or infrastructure, etc. That builds workforce. Physical
infrastructure is a vital component of the New England economy. Firms
and households depend on the roads, bridges, ports, drinking water,
sanitation, and energy production and transmission infrastructure that
is built and maintained by the public sect

Ukraine Population

YEAR POPULATION
2009 92,414,158
2010 93,966,780
2011 95,570,047
2012 97,212,638
2013 98,871,452
2014 100,513,123
2015 102,113,212
2016 103,663,927
2017 105,173,264
2018 106,651,922
 POPULATION
110,000,000

106,651,922
105,000,000 105,173,264
103,663,927
102,113,212
100,000,000 100,513,123
98,871,452
97,212,638
95,000,000 95,570,047
93,966,780
92,414,158
90,000,000

85,000,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

2009 - Births are well below replacement level. Life expectancy of

Ukraine is lower than in wealthier countries with low fertility, such as
Germany and South Korea, so it needs more births than those
countries to compensate deaths.

2010 - A natural population movement in January 2010 was

characterized by both birth and death rates decrease, and also by a
significant surplus of the number of deaths over the number of live
births: 100 deaths per 61 live births.

2011 - High passing rates due to smoking, mishaps at work and high
frequency of suicides influence men in particular earlier before they
reach the age of 65. In 2011, life anticipation at birth in Ukraine was
as it were 69.5, compared to 78.6 within the EU.
2012 - Life expectancy at birth this year has increased which is a good
sign since the population has had a very high death rate in the past
few years.

2015 - According to a 2015 survey funded by the United Nations and

the Ukrainian government, 55 percent of Ukrainians ages from 14 to
35 said that they would choose to move abroad temporarily, or for
good. Ukraine's abortion and marriage rates have both decreased
since the Soviet Union's breakup,emphasized Ukrainians' reluctance to
start families and have children. Ukraine's marriage rate also
decreased from 9.3 marriages per 1,000 people in 1990 to 7.8
marriages per 1,000 people in 2015, according to government data.

2016 - It was reported by The State Statistics Service of Ukraine the

leading cause of death in 2016 was heart disease (68 percent of
deaths), followed by cancer (18 percent of deaths). The country’s high
mortality rate is due to low- quality health care, increase of epidemic
diseases and widespread abuse of alcohol and drugs.
UKRAINE LABOR FORCE

YEAR LABOR FORCE

2009 37,605,197
2010 38,558,345
2011 39,910,793
2012 40,497,727
2013 41,205,244
2014 42,537,172
2015 43,222,317
2016 43,898,340
2017 43,058,277
2018 44,059,044
 LABOR FORCE
46,000,000

44,000,000 43,898,340 44,059,044

43,222,317 43,058,277
42,537,172
42,000,000
41,205,244
40,497,727
40,000,000 39,910,793
38,558,345
38,000,000
37,605,197

36,000,000
2014 -
34,000,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Because of
difficult
economic and political situation
in Ukraine for the last 2 years, the amount of labor force declined
sharply in the year 2014 – from 21980 thousand people to 21020
thousand people.

2017 - The decline in the labor force participation of people with less
than a college degree was a main cause of the drop in the overall labor
force participation rate.
 EMPLOYMENT RATE

YEAR EMPLOYMENT RATE

2009 59.881
2010 59.97
2011 60.662
2012 60.26
2013 60.004
2014 60.573
2015 60.614
2016 60.518
2017 58.214
2018 58.334
 YEAR LABOR FORCE PARICIPATION RATE
2009 66.398
2010 66.438
2011 66.775
2012 66.418
2013 67.244
2014 65.786
2015 66.208
2016 66.212
2017 EMPLOYMENT RATE 66.38
61 2018 66.436
60.66 60.57 60.61
60.5 60.52
60.26
60
59.88 59.97 60
59.5
59
58.5
58.21 58.33
58
57.5
57
56.5
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
 Chart Title
100000
93356
90000

80000

70000

60000

50000

40000

30000

20000

10000

00 117.13 136.01 163.16 175.78 183.31 133.5 91.03 112.19

Year 2009 2010 2011 2012 2013 2014 2015 2016 2017

UNEMPLOYMENT RATE

2009 8.84
2010 8.1
2011 7.86
2012 7.53
2013 7.17
2014 9.27
2015 9.14
2016 9.35
 2017 9.51
2018 9.381

UKRAINE
Cause of Inflation
DATE INFLATION RATE (%) ANNUAL CHANGE
2018 10.9 -24.21%
2017 14.4 3.81%
2016 13.9 -71.41%
2015 48.7 302.35%
2014 12.1 -4,736.20%
2013 -0.3 -146.19%
2012 0.6 -92.90%
2011 8.0 -15.02%
2010 9.4 -41.10%
2009 15.9 -36.91%
 INFLATION
DATE INFLATION RATE (%)

48.7

10.9 14.4 13.9

12.1 15.9
2018 2017 8 9.4
2016 2015 2014 2013
-0.3 0.6
2012 2011 2010 2009

1 2 3 4 5 6 7 8 9 10

2009: 15.9%
Analysts say the explanations for the crises are slumping steel prices,
local banking problems and therefore the cutting of Russian gas supply
of January 2009. This made key industries like metallurgy and
machine building lay off workers, and real wages began to fall for the
primary time during a decade.
Ukraine's banking industry recorded losses of seven billion hryvnias
(UAH) ($909 million) within the first quarter 2009 compared to a profit
of 2.1 billion hryvnias within the same period a year ago, consistent
with a financial institution report of April 22, 2009. In April 2009 the
IMF forecast an 8.0 percent shrink of the Ukrainian economy in 2009
and a 1.0 percent grow in 2010. Mid-April 2009 Ceyla Pazarbasioglu,
the IMF mission chief in Ukraine, stated that there have been variety
of encouraging signs that Ukraine's economy had started to adjust to
the global crisis. According to Olena Belan, analyst at Dragon Capital,
"that may be a good signal for investors, showing that Ukraine is
taking anti-crisis measures and therefore the economic situation is in
under control . Foreign direct investment did plunge 66% (to $2.7
billion) within the half of 2009.

2010: 9.4%
Ukraine's total foreign debt (state and corporate) had reached 93.5%
of the 912.563 billion Hryvnya GDP in March 2010; late February 2010
the Ukrainian Finance Ministry had reported that the country's total
state debt by early 2010 was to 32.9% of the GDP. Standard & Poor's
upgraded Ukraine's rating an equivalent day.
March 18, 2010 the National Bank of Ukraine stated the total external
debt in Ukraine increased 2.3% to $103.973 billion in 2009, and it
considered a 4% GDP growth realistic for 2010 the same day.
The Ukrainian economy recovered in first quarter of 2010 thanks to
stronger-than-expected growth due to global economy, driven
primarily by emerging Asia and Latin America , larger social transfers
to the population approved in the 2010 budget law and a lower price
for imported natural gas (due to the 2010 Ukrainian–Russian Naval
Base for Natural Gas treaty).
2011: 8.0%
In 2011 Ukraine’s economy continued recovering from the crisis.
The economic process was supported by domestic demand, while
external demand remained weak. The year was marked by sizable
amount of negotiations, major of which didn't resulted in favourable
results for the country. The Government didn't continue
implementation of reforms in most sectors. Political instability again
became one among the main risks for future development of Ukraine.
Another risk further related to global economic slowdown.
2012: 0.6%
In the half of 2012 Ukraine’s economy was supported by government
spending and tax preferences associated with the Euro-2012 football
championship. However, benefits from Euro-2012 were limited to
improved infrastructure and modest improvement in Ukraine’s visibility
on international arena. In the last half of the year the stimulus was
withdrawn and external demand slipped resulting in recession.
Ukraine didn't achieve significant progress in domestic reforms and
had limited success in external integration projects. Political instability
remained one among the main risks for future development of
Ukraine.
2013: -0.3%
Real GDP in 2013 remained at the extent of 2012 as positive
contribution of domestic demand to economic process was outweighed
by negative contribution of net real exports. Decline in investments
undermines economic process within the future. During the year the
govt didn't approve reforms for fiscal consolidation and improvement
of business climate and, as a result, did not negotiate new IMF
program. The Government faced huge liquidity gap within the end of
the year, which resulted in delays in financing all expenditures
including even wages and social payments. In the end of the year,
Ukraine didn't sign Association Agreement with the EU and negotiated
for closer relations with Russia, which triggered political crisis within
the country.
2014: 12.1%
In 2014, Ukraine faced the toughest challenges within the XXI century
including depression , military conflict within the East, and annexation
of Crimea by Russia. Drop in domestic demand and weak external
demand resulted in contraction of real GDP by 6.8%. High economic
and political uncertainty resulted in sharp increase in demand for
foreign currency. This along side decline in exports cause sharp
hryvnia depreciation.
2015: 48.7%
In February 2015 the CPI inflation, already quite high, accelerated
further – to 34.5% year-to-year, the highest figure in two decades. It
hasn’t come as a surprise – there was a huge increase in UAH/USD
exchange rate which provoked panic on the consumer market, and the
population tried to spend hryvnia on anything durable “before money
becomes worthless”, as buyers say.
2017: 14.4%
As reported, the Ukrainian government and therefore the commercial
bank of Ukraine initially forecast a slowdown in consumer price growth
to 8-8.1 percent in 2017. However, during the year they worsened
their forecasts. In particular, the government at the end of May
revised its inflation forecast from 8 percent to 11.2 percent, and the
National Bank’s inflation forecast given in late October was 12.2
percent instead of earlier predicted 9.1 percent; the inflation forecast
for 2018 was changed to 7.3 percent from 6.0 percent.
While drafting the national allow 2018, the cupboard of Ministers also
worsened the inflation forecast for 2018 from 7 percent to 9 percent.
2018: 10.9%
The growth of consumer prices in Ukraine in 2018 slowed to 9.8
percent compared with 13.7 percent in 2017, the State Statistics
Service of Ukraine has reported.As reported, the inflation growth rates
within the previous years were as follows: 12.4 percent in 2016, 43.3
percent in 2015, and 24.9 percent in 2014.In December, inflation was
0.8 percent against 1.4 percent in November, 1.7 percent in October,
and 1.9 percent in September.The State Statistics Service said that
the average annual inflation in 2018 (January-December to January-
December of the previous year) decreased to 10.9 percent from 14.4
percent a year earlier.In December, underlying inflation also fell to 0.6
percent from 1.1 percent in November, 1.3 percent in October, and
1.9 percent in September, and by the end of 2018 the figure reached
8.7 percent.

How does inflation affect consumption level?

The world crisis of 2008-2009 hit Ukraine hard: GDP contracted by
14.8%, year average rate of exchange changed from UAH/USD 5.27 in
2008 to 7.79 in 2009, exceeding for a brief period UAH/USD 10 at the
height of the crisis. Nevertheless, inflation actually subsided slightly –
from (year average) 25.3% in 2008 to 16% in 2009 and 9.4% in
2010. The situation seemed on the right track: economic growth
resumed in 2010, exchange rate stabilized (and again was de facto
pegged), inflation lowered to single digits.

During the crisis both the GDP and personal consumption fell roughly

to a similar extent. However, the restoration of the latter was way
faster than the former – already in 2011 it was (in constant prices)
higher than in 2008, while the GDP remains lower than the pre-crisis
figure to this day. In the second half of 2012 the new recession has
started, which continues today. In order to fight it the government
supported private consumption and decided to keep the UAH/USD
exchange rate fixed. Therefore, two factors pressed prices in different
directions: incomes pushed prices upward while lower economic
activity pulled them down. Over 2012-2013 the recession temporary
won – cumulative price growth for these 2 years was just 3% – an
astonishing drop if one remembers that during the previous decade
(2001-2011) the annual inflation was on average 10.3%.

The hindering effect of the recession ended together with foreign

reserves which were spent for artificial stability of the exchange rate,
and in 2014 depreciation of hryvnia spurred the inflation that reached
24.9% December to December.

MONETARY POLICY AND CENTRAL BANKING

Until 2008, the exchange rate of the hryvnia was pegged to the
US dollar. Under such a system, monetary policy is subordinated under
the exchange rate policy. The role of the central bank in such a fixed
exchange rate system is basically limited to interventions on the
foreign exchange market, i.e. buying and selling foreign currency in
order to keep the exchange rate fixed. Key monetary variables such as
the growth of monetary aggregates, inflation or interest rates are then
not determined by the use of monetary policy instruments, but a direct
consequence of such interventions. In short, until 2008, Ukraine had
no independent monetary policy. Accordingly, the academic and public
debate on the topic was rather limited. However, in 2008 the NBU
changed the system and introduced a flexible exchange rate system.
Under the new system, monetary policy has a much bigger importance
and economic relevance than before. In particular, the provision of
liquidity and the interest rates in the market, both very topical issues,
depend considerably on the conduct on monetary policy and the use of
its instruments. Consequently, monetary policy has become a key
issue of debate in Ukraine for both experts and policy makers.
In this paper, we present our views on current monetary policy
in Ukraine. In order to structure the discussion, we distinguish three
main topics.
The stance of monetary policy
 What should be the stance of monetary policy under current
conditions? Monetary policy is currently facing very difficult conditions.
Inflation has dropped significantly since its peak in May 2008 (31.1%
yoy based on CPI), but it is still very high (14.1% yoy in October
2009). Besides, as shown by different business surveys, inflation
expectations are still very high. As a rule, people expect an increase of
inflation in the near future, a fact which could contribute to higher
inflation, given the well-known dangerous dynamics of expectations
("self-fulfilling prophecies").
Furthermore, there are widespread depreciation expectations in
the country, mainly due to internal political risks in the context of
Presidential elections in January 2010. Finally, fiscal policy is clearly
expansionary and is becoming more expansionary by the day, as
indicated by the large deficit implied in the Draft Budget 2010 and by
the new law introducing substantial increases in minimum wages and
pensions. Under such difficult conditions, a generous provision of
liquidity could have disastrous consequences. An expansionary policy
would directly (i.e. through an increase in monetary aggregates)
contribute to higher inflation. But also the negative impact on inflation
expectations would indirectly create pressures on prices.
Furthermore, much of the additional liquidity might end up as
demand for foreign currency, giving the existence of widespread
devaluation expectations. As a result, the hryvnia might further
depreciate against major international currencies, thus aggravating
current problems related to balance sheet effects of devaluation, but
also putting more pressure on inflation. Finally, the current expansive
fiscal stance does not allow for a further monetary impulse.
The instruments of monetary policy The analysis of the stance of
monetary policy determines how it should be set in order to achieve its
stated objectives, i.e. gives important information regarding the
further course of monetary policy. Once this is done, the focus is on
the implementation of monetary policy decisions, i.e. on the
operational framework. In this chapter, we will analyse and assess the
currently available instruments of the NBU, also using an international
perspective.

Fiscal Policy
Given the sharp economic contraction, the revised program
relaxes the fiscal target for 2009 from balance to a deficit of 4 percent
of GDP, excluding the cost of bank recapitalization (up to 9 percent of
GDP including it). Given the structure of the budget— two-thirds of
government expenditure are public wages and social transfers—and
the planned cuts in capital expenditures, a more ambitious deficit
target would require further cuts in real incomes and social transfers.
On the other hand, a higher deficit target would pose risks to medium-
term fiscal sustainability. On balance, the authorities and staff
concurred that, in light of Ukraine’s history of low deficits and debt, a
temporarily higher fiscal deficit should not be detrimental to market
confidence, if accompanied by credible assurances about future
adjustment.
To secure fiscal sustainability, the authorities plan to
implement structural reforms before the end of 2009 (MEFP
¶11)
Under current policies and macroeconomic assumptions, the
government deficit would reach around 4½ percent of GDP in 2010.
The deficit will be kept at 2–2½ percent of GDP, a level in line with
available financing and sustainability considerations. To reach this
objective, the authorities have committed to reform the pension
system to contain pension expenditures, which are among the highest
in the world as a share of GDP. The reform will harmonize special
pensions with the general system formula and set the retirement age
taking into account demographic developments. In line with program
objectives, the authorities plan to implement a quarterly natural gas
price adjustment to bring prices to economically justified levels, with
targeted transfers to protect the poor.
Administrative measures to limit exchange rate flexibility will
be phased out.
The authorities have taken various administrative controls to
contain exchange rate volatility, including limits on the open foreign
currency positions of banks and regulation that requires banks not to
deviate from the average exchange rate. Most recently, the authorities
have banned foreign exchange forward transactions until January
2010. These resolutions impair banks’ ability to conduct their business
in a profitable way and could deter foreign investors from operating in
Ukraine. The authorities noted that the measures were needed on a
temporary basis to contain exchange rate pressures and agreed to
phase them out by end-May 2009.

Interest rates will be raised if pressures on the exchange rate

or domestic prices intensify.
A significant increase in real policy interest rates in recent
months has implied a tightening of the monetary policy stance. And
with inflation falling rapidly and pressures on the exchange rate
easing, there is no immediate need for an increase in policy rates at
the current juncture.
Measures are being taken to improve the operational
framework for monetary policy (MEFP ¶16).
• The authorities have finalized resolutions that specify the conditions
for granting of liquidity support to solvent banks with adequate
collateral and conditionality, and that clarify supervisory action and
consultation procedures between the NBU and the government for
decisions involving problem banks.
• To strengthen the effectiveness of monetary policy, the authorities
are working on a regulation that aims to rationalize the structure of
policy interest rates, ensuring that key policy rates are adequately
positioned relative to each other and adjusted in parallel.
Discussions focused on the urgent need to resolve the systemic
problem banks.
The Government has decided to recapitalize the systemic
problem banks and the NBU and the Ministry of Finance (MoF) have
agreed on all the technical documents and procedures, which include a
detailed road map of joint decision making to ensure full compliance
with the current legal requirements.
The resolution of the seven systemic problem banks includes
taking government control and recapitalization.
It was announced that legal steps will be taken to dilute the
share of existing shareholders to the fair value and that the
Government will acquire at least 75 percent+1 share/voting right in
each of the seven banks. The Government would own 99 percent of
four of the seven banks and at least 75 percent in the remaining three
banks. The NBU has initiated legally-required measures necessary to
safeguard bank assets in these banks, including introduction of
temporary administration. Capital needs of these banks will be
calculated by international audit firms based on an update of the
diagnostic study results and the banks will undergo a thorough due
diligence that includes an assessment of restructuring options post-
recapitalization

The authorities have strengthened the institutional capacity to

implement the bank recapitalization program.
 A high-level council consisting of representatives from the NBU,
Ministry of Finance and Ministry of Economy has been established to
oversee the recapitalization of banks using public funds which is
supported by a newly created recapitalization unit within the Ministry
of Finance. To more effectively handle the workout of several banks
that do not qualify for recapitalization through the use of public funds,
the NBU is in the process of creating a Problem Bank Unit. The
authorities have also put in place a loan loss classification and
provisioning framework, in line with international practices, to facilitate
loan restructurings.
The authorities have prepared a resolution on the publication of
financial information on banks (MEFP ¶26).
In line with program commitments, publication of a
comprehensive set of information on banks is planned to commence in
September 2009.
Strengthened policy implementation is critical to support
economic activity and restore confidence:
• Fiscal policy has to strike a balance between cushioning the
economic downturn and preserving medium-term fiscal
sustainability. The revised program relaxes the fiscal deficit target
for 2009 from balance to a deficit of 4 percent of GDP and the staff
welcomes and supports the authorities’ efforts to mobilize additional
financing. However, given uncertainties regarding revenues, it is
critical that the authorities have in place contingency measures to deal
with possible shortfalls.
• It is critical to implement a flexible exchange rate policy,
supported by base money targets and a transparent
intervention strategy. Given the openness of Ukraine’s economy and
the concentration of its exports, to discourage dollarization and
excessive risk taking by unhedged borrowers, and to allow monetary
policy to focus on inflation objectives, it is key that the hryvnia
exchange rate is flexible. Staff welcomes the actions taken to align the
official exchange rate with the market rate. At the same time,
potentially large negative balance sheet effects associated with the
large amounts of unhedged foreign currency borrowing make it
important to avoid excessive exchange rate depreciation.
• Measures are urgently needed to restore confidence in the
banking system. The diagnostic phase of the bank recapitalization
program has advanced well, the authorities have recently placed
temporary administrators in several problem banks, and all foreign
banks and some domestic banks have committed to inject the
necessary capital. However, for a durable restoration of banking
system confidence, it is critical that resolution of systemic insolvent
banks proceed swiftly, and that the next steps of the bank
recapitalization program are implemented without delay. It is also
important that these steps are consistently taken on the basis of
transparent technical criteria. The legal amendments that the
authorities have prepared to support these policies should be rapidly
implemented.
With inflation falling rapidly and pressures on the exchange
rate easing, there is no immediate need for a tightening of
monetary policy.
Monetary policy will remain anchored on base money targets.
Recent amendments to the refinancing framework should help ensure
that refinancing is provided to solvent banks with adequate collateral
and conditionality and that consultation procedures are in place
between the government and the NBU for decisions involving insolvent
banks.
To keep fiscal policy on track to achieve medium-term
sustainability, parliament approved a 2019 budget with a
deficit of 2.3 percent of GDP (prior action).
 With a primary surplus of 1½ percent of GDP, this is projected
to bring public debt down to 64 percent of GDP by end-2019, placing it
on a sustainable path (see the attached public debt sustainability
analysis). The budget is based on conservative revenue assumptions
and while defense spending continues to be elevated, the budget aims
to improve the composition of spending by containing current
spending. The deficit target is expected to be met thanks to a mixture
of expenditure and revenue measures (MEFP ¶5b):
 Wage increases are contained to stabilize the wage bill
as a share of GDP. The budget accommodates significant
increases for military wages but includes limited increases for
civil servants and public administration employees. To
continue to reduce the incidence of poverty, the minimum
wage is raised by 12 percent.
 Pensions will be raised in line with the indexation rules
of the new pension law, adopted in 2017. Pension
benefits will on average increase by 8½ percent, while
retirees whose pensions equal the subsistence minimum will
see a 9½ percent increase. With the implementation of the
new pension law at the start of 2018, pension spending is
projected to fall slightly in 2019, to just over 10 percent of
GDP, while the pension fund deficit is projected to decline to
4¼ percent of GDP in 2019, compared to a deficit of over 6
percent of GDP in 2016.
 Sufficient social assistance is provided to vulnerable
groups, including housing and utility subsidies (HUS),
but with improved targeting. Utility subsidies will help defray
the impact of higher gas and heating tariffs on low-income
and vulnerable households, covering about 5 million
households. In parallel, the authorities have enhanced
means-testing of benefits to address issues that emerged
with the increase in beneficiaries outside of the targeted
 groups last year, thus being able to contain budget outlays on
HUS to 1½ percent of GDP.
 On the revenue side, the budget includes several tax
measures. Besides increases in excise rates, the royalty
rates for oil, gas condensate, iron ore and forestry usage and
the environmental tax (on CO2 emissions by stationary
sources) are raised, while the increase in the wholesale price
of gas for household use (see below) also leads to higher
royalty and value added tax payments. In addition, import
duties are levied on used cars and the cap on wages subject
to social security contributions will be lifted.
 Strong fiscal policies will need to be maintained in the
coming years to continue the ongoing debt reduction.
Beyond 2019, the authorities are committed to maintaining
fiscal discipline, including by targeting primary surpluses
between 1–1½ percent of GDP. There is a projected fiscal gap
stemming from wage level objectives embedded in various
pieces of reform legislation, including the civil service, health
care, and education reform laws. There is scope under the
legislation, however, to address this by limiting wage
increases to inflation and productivity gains. Reducing public
sector employment, and further improving tax administration
and widening the tax base would give an alternative strategy
to fully realize the objectives of these laws. It will be critical
to avoid deficit-increasing tax changes. In this regard, the
authorities have requested further technical assistance from
the Fund to support their efforts.
 After several false starts, the authorities are preparing
to make a new push to modernize revenue
administration (MEFP ¶7). As a priority, and to create a
streamlined, functionbased organization, they plan to
consolidate current central and regional tax and customs units
of the State Fiscal Service into two separate legal entities: a
Tax Service and a Customs Service, by end April 2019, which
 will both report to the Minister of Finance (a structural
benchmark). New management for both entities will be
appointed through a transparent recruitment process, also by
end-April 2019. The Ministry of Finance will strengthen its
supervisory and control functions through detailed reporting
requirements and key performance indicators, while the
ministry will also complete an audit of the tax and customs
administrations’ IT systems to detect weaknesses and risks
for data security. In parallel, the authorities are preparing
additional operational steps to improve the efficiency of the
tax and customs administrations and alleviate the compliance
burden on taxpayers by shifting to risk-based audits;
enhancing the online taxpayer portal (e-cabinet) to allow for
online registration, updating of taxpayer information, and
electronic payment; and improving taxpayer information
services.
 Efforts to further strengthen public financial
management will also continue (MEFP ¶6). This includes
the adoption of a medium-term budget framework (MTBF) for
2019–2021 to reinforce fiscal discipline, facilitate informed
policymaking, and provide predictability in planning and
executing budgets. The authorities will also seek to amend
the budget code to reflect core elements of the MTBF,
including a stronger mandate for fiscal risk monitoring and
reporting; requiring a credit risk assessment for issuing
government guarantees; introducing binding budget ceilings
for key spending units in the annual budget declaration; and
regularizing assessments of public expenditure efficiency
through rolling spending reviews.
Monetary and Exchange Rate Policies: Reducing Inflation and
Building Reserves
After an acceleration in 2017, inflation is declining and
projected to end this year at around 10 percent.
 Headline inflation increased quickly in the second half on
2017, peaking at 16.5 percent in early 2018, following large
wage increases in the public and private sectors. Although at
around 10 percent at end-October 2018, headline inflation is
still above the NBU’s 6±2 percent target range, it has been on
clear deceleration path in recent months, owing much to the
NBU’s commitment to its inflation targeting framework and
decisive actions by raising the policy rate in six steps by 550
basis-points to 18 percent. Notwithstanding the turbulence in
several emerging market countries, the hryvnia has remained
relatively stable, allowing the NBU to buy on balance nearly
US$1 billion so far this year—following net purchases of
US$1.2 billion in 2017—and to continue to gradually ease
administrative restrictions in line with the agreed roadmap
under the EFF arrangement. Specifically, the NBU continued
to expand the repatriation of dividends, canceled the daily
limit on banks’ net foreign exchange purchases and raised the
limit on banks’ open long foreign exchange position.
 The NBU is strongly committed to continue with prudent
monetary and exchange rate policies, to anchor inflation
expectations and build stronger reserve buffers (MEFP ¶3).
The monetary policy stance is appropriate, with the policy
rate strongly positive in real terms, to bring inflation gradually
down to within the NBU’s inflation target by early 2020. As
inflationary pressures ease, the policy rate can be gradually
reduced, but should remain sufficiently high to enable the
NBU to steer inflation within the target band and to continue
to buy foreign exchange, which is necessary to build stronger
reserve buffers. This will also allow the NBU to continue with
a gradual elimination of the remaining exchange restrictions,
administrative controls, and capital flow measures in line with
the agreed roadmap and the recently approved currency law
that provides a new legal framework for currency operations.
The NBU has continued to strengthen its monetary policy
 framework. With all its members now appointed, the NBU
Council reaffirmed the NBU’s commitment to inflation-
targeting, with an inflation target of 5±1 percent for 2019
onwards, and a flexible exchange rate, with foreign exchange
intervention aimed at rebuilding international reserves,
smoothing exchange rate volatility, and supporting the
transmission mechanism. The transparency and
communication of monetary policy decisions have been
enhanced with the release of the summary of the minutes of
the Monetary Policy Committee meetings. To better align
program conditionality with the NBU’s inflation targeting
regime and reflecting the strengthened institutional and
technical capacity of the NBU, the program includes a
monetary policy consultation clause. An indicative target on
the NBU’s net domestic assets is retained to safeguard
against excessive expansion of the NBU’s balance sheet.
 The NBU is taking further steps to enhance its operational
framework It will move to more active liquidity management,
to better ensure that the interbank market rate remains close
to the policy rate, especially as banks’ overall liquidity
position is expected to change from a structural surplus to
fluctuating between a surplus and a deficit position. In this
regard, enhancing liquidity forecasting, including by
improving information sharing between the Ministry of
Finance and the NBU will be important for effective monetary
operations. D
Financial Sector Policies: Strengthening Banks’ Financial Health
Further and Reviving Credit 27.
Banks’ financial health has continued to improve,
although challenges remain. Capital buffers have strengthened
since end-2016, with banks’ core equity capital (CET1) ratio increasing
by 2.2 percentage points to 11.2 percent by end-July 2018. All banks
met the minimum regulatory capital of 7 percent of risk-weighted
assets as of end-July 2018. Related-party exposures have substantially
declined and following large provisioning and losses in recent years,
the banking system is slowly returning to profitability. Liquidity ratios
have also improved. Nonetheless, banks continue to grapple with a
high level of NPLs, at over 55 percent of total loans (although these
are largely provisioned for). Profitability remains a challenge for
several banks.
The NBU reaffirmed its commitment to further strengthen
bank capital. By end-March 2019, all banks should meet a minimum
7 percent Tier 1 capital and 10 percent CAR (MEFP ¶10). Banks that
fail to meet these minimum capital requirements will face appropriate
supervisory actions, including resolution, by end-June 2019 (a
structural benchmark). Additionally, to mitigate related-party exposure
risks, the NBU agreed to revise by end-December 2018 the capital
regulation to subtract from regulatory capital loan exposures to related
parties that are above regulatory limits.
The authorities will step up efforts to recover assets from
failed banks and hold banks’ former owners accountable as
envisaged by the Banking law and the law on the Deposit
Guarantee Fund (DGF) (MEFP ¶11). Progress in disposing of failed
banks’ assets by the DGF has so far been limited. The authorities
reiterated their determination to accelerate the recovery and sale
processes to reduce the cost of bank failures to the state, including via
ongoing litigation. In addition, they are committed to seeking
compensation from former bank owners and related parties, in line
with provisions in the Banking and DGF laws. They will publish the list
of all former shareholders of resolved banks that are yet to honor their
debts to the failed institutions, as ruled by court decisions.
Several initiatives are underway to facilitate NPL
resolution (MEFP ¶12). Little progress has been made in reducing
NPLs in the last two years, despite the adoption of a law to facilitate
outof-court restructuring and the removal of tax impediments to NPL
resolution. In this regard, the authorities are taking further actions to
encourage NPL workouts. In October 2018, a new insolvency law was
approved by parliament. A policy framework for NPLs restructuring in
state-owned banks is under preparation. In addition, the NBU, with
technical support from the World Bank, is working on a regulation, in
line with the European Central Bank (ECB) approach, to provide
guidance to banks on how to reduce their NPL portfolios.
Improving governance in state-owned banks is a key
priority (MEFP ¶13). State-owned banks now account for more than
half of the banking system’s assets. Following the recent adoption of a
law to strengthen corporate governance in state-owned banks (a prior
action), the focus is now on establishing supervisory boards with a
two-thirds majority of independent board members. The Ministry of
Finance and each of the state-owned banks will also sign relationship
agreements consistent with the updated Principles of State Banking
Sector Strategic Reforms that will govern practical aspects of their
interaction.
Inflation targeting regime traditionally is regarded as the most
effective in transition and emerging economies. It is well-known that a
common feature in the inflation targeting regime is the target inflation
rates which are managed on the basis of the usage of changes in
interest rates and other monetary instruments. It is envisaged that
Ukraine should transit to inflation targeting in the second half of 2015.
Given this, the question is whether there are necessary preconditions
for the implementation of this framework in Ukraine, where national
financial system is weak in terms of powerful geopolitical challenges,
devaluation effects, industrial output decline and worsening structural
imbalances. How in these conditions to ensure the orderly and
systematic use of monetary instruments for the maintenance of
inflation target, taking into account the imbalance of Ukrainian money
market and possible external and internal shocks? In the study of
characteristics of transition to inflation targeting in Ukraine, we have
taken into account the effect of several adverse factors, which include
the following:  increase in external debt of Ukraine against the
background of decline in international reserves, due to the monetary
policy of the National Bank, aimed at keeping fixed exchange rate of
national currency recent years;  increase in refinancing commercial
banks to maintain liquidity of banking system;  rapid increase in
private debt of Ukraine in foreign currency due to difference in
borrowing rates on domestic and foreign markets;  lack of
complementarity in the set of tools and methods in managing inflation,
budget deficit and public debt sustainability. The National Bank of
Ukraine (NBU) purchases significant amounts of government debt
securities in the secondary market (such as debt securities placed by
the Government in the share capital of recapitalized banks, and
'Naftogaz Ukraine' Corporation). NBU officials called this phenomenon
"quasi-monetization", while Government officials – "quasi-fiscal"
operations;  insufficient level of NBU operational independence on
the choice of instruments to achieve policy targets; inability to fully
abandon the principle of fiscal dominance subject to government
borrowing and due to underdeveloped domestic financial market in
terms of capability to absorb additional volumes of government
securities issuances;  opacity of the financial market in Ukraine
which is not effectively perform the functions to redistribute financial
resources in the national economy. Thus, in terms of access to finance,
Ukraine during 2009-2012 dropped from 45 to 56 position among 62
countries, according to estimates by • complication of access to capital
markets, which adversely affected the financial condition of borrowers
and deepened the deficit of the financial account balance;
• the growth of quasi-fiscal deficit and fiscal dominance which are
revealed by significant transfers from the National Bank of Ukraine
(NBU) to the state budget, and internal debt monetization (the share
of government bonds held by the NBU had increased to UAH 171 bln
or enhanced from 58.3% to 69.5% of the bonds in circulation). That
led to the further deployment of inflation, limitation of possibilities of
the NBU to support commercial banks;
• increase in value of foreign currency loans servicing due to the rapid
devaluation of the national currency by 49.3% in 2014. Against the
background with significant deterioration in the financial condition of
enterprises and households it negatively affected their ability to
maintain debts;
• increase in non-performing loans (NPL) share – NPL level in 2014
increased by 6.1% and reached 19%. That necessitated the formation
of vast reserves (UAH 103.3 bln). And, as a consequence, it was
increase in losses of the banking system (up to UAH 53 bln in 2014);
• the mass recapitalization of commercial banks;
• reduction in resource base of banks through significant outflow of
deposits of “Naftogaz Ukraine” National Joint Stock Company, the
Individuals Deposit Guarantee Fund, and households, which was due
to both objective (reduce in real income) and subjective factors
(people’s expectations about the future financial and geopolitical
uncertainty in the state, the intro
duction of administrative restrictions on withdrawal of deposits, the
existence of households’ alternative savings out of banking system);
• shortening of non-financial corporations deposits under the influence
of economic activity and foreign trade declining. Over the last years
(2014–2016) banks have lost one-third of the deposit portfolio;
• reduction in the resource base and growth of the risks that adversely
affected the banking crediting (compared to pre-crisis 2013, in post-
Maidan 2014 the amount of loans issued in a national currency
decreased by 13%, in a foreign currency – by 46%);
• the loss of paying capacity by individual banks, which necessitated
the introduction of the interim administration, and liquidation of 33
commercial banks (more than 10% of total banking system assets at
the beginning of 2014);
• a negative result of banks activity – the losses accounted for nearly
UAH 53 bln. They were formed primarily by a significant increase in
charges to reserves for possible losses from active operations.
In general, the monetary policy in 2014–2016 was conducted under
the conditions of rapid changes in the economy, primarily due to
macroeconomic imbalances. The adoption and conducting of monetary
policy by the central bank was caused by moderate expectations of the
government and the rejection of “traditional conservative measures of
crisis management” (Griebeler, 2015).
2.2. Fluctuation of currency and price dynamics
The development of negative processes in the economy has been
accelerated due to the growth of social and political tension and losing
a part of economic potential through the political confrontation with
Russian Federation.
Results of estimating influence of interest rate and exchange rate on
aggregate demand are represented by the following regression
equations:
y = 65.36 q – 126.06 r + 145.36, (3)
R2 = 0.96, F-statistic = 24.04, p-value = 0.04, where y – aggregated
demand, UAH Billion. In this way, we found that increase in aggregate
demand is negatively related with interest rate and positively – with
exchange rate. Analysis of variables in formula (3) shows that total
value of aggregate demand in Ukraine would be based on 65% of
impact of interest rate and 35% – exchange rate. Thus, changes in
interest rates by 1% will cause such effect as change of exchange rate
to 1.93%. In view of this: As/Ar = 65.36/126.06 = 1/1.93 = 0.518..
Therefore, above mentioned equation of monetary conditions index in
Ukrainian context will be as follows:
ukrMCIt = (IRCТ – 6.5) + 0,518 (logn NWERI – logn 25.5857) * 100,
Fiscal Policy and Government Funds
a. What are the sources of government revenues and the
manner of spending the budget of your assigned country?
Identify.
Ukraine is subdivided into nine economic regions in which were
redrawn from the three Soviet economic regions of the Ukrainian
Soviet Socialist Republic. Ukraine suffered severely in the economic
crisis of 2008. However The Ukrainian economy recovered in the
first quarter of 2010 due to the recovery of the world economy and
increasing prices for metals.
The most important sources of tax revenue in Ukraine are unified
social security contributions, value added tax, individual income
tax. There are 3 classifications of taxes of the revenue that the
Ukraine has. First is the direct tax in which composes of Individual
Income tax, Inheritance and Gift Tax, Corporate Income Tax, Net
wealth tax, Real property tax, Social security contributions. Second
is the Indirect taxes which is composed of Value added tax, Capital
tax, Real, Estate, Tax, Capital tax, Transfer tax, Stamp duty. And
lastly is the Withholding tax in which must be remitted to the tax
authorities no later than the date when the payment is made to the
income recipient. Hence, there are also other taxes collected in
Ukraine include customs taxes, different types of rental duty and
environmental tax. Customs taxes are mainly levied on imports and
the rates mainly vary between 0% and 10%, although in some
cases they can be higher. Rental duty taxes natural resources.
Within its scope falls for instance extraction of mineral resources or
using of radio sequences. Environmental tax taxes pollutants leaked
into water and air and disposal of waste. The rates differ,
depending on many different factors.
Ukraine is a relatively rich in natural resources, mainly in mineral
reserves. Although oil and natural gas deposit in the country are
largely exhausted, it has other important energy sources, such as
coal, hydroelectricity and nuclear fuel raw materials in which
provides the country’s economic status.
b. What are the policies imposed by the government of your
assigned country?
Fiscal policy plays an important stabilizing role in the Ukrainian
economy. Since the 2008-2009 global crisis, which hit Ukraine
particularly hard, the government relied on fiscal stimulus to
support recovery. In reality, it was the main lever for
macroeconomics management given an effectively pegged
exchange rate regime. Today, even after the recent float of the
Ukrainian hrynia, fiscal policy remains key to economic stabilization.
Faced with renewed crisis, durable fiscal adjustment is critical to
restoring economic confidence amid heigtened uncertainties and
geopolitical risks. According to a new World Bank report, social
inequality across the regions of Ukraine is low, but the social gap in
urban and rural areas remains wide. Toward a New Social Contract
calls for a fundamental rethinking of policies to ease the growing
divide between those who benefit from new economic opportunities
and those who are left behind in an ever-more flexible economy.
Around the average for Eastern Europe, Ukraine ranks the third
lowest in Europe and Central Asia in terms of inequality across
regions. However, when comparing urban to rural areas, the gap is
much wider. This gap is mostly explained by residents in rural areas
having poorer endowments, such as educational, than those
residing in urban areas. According to the report, closing spatial
disparities, by ensuring people have the necessary human capital to
succeed in the modern world, and providing greater access to
opportunities will lead to more inclusive growth.
The organization responsible for tax policy in Ukraine is the State
Fiscal Service, operating under the Ministry of Finance of Ukraine.
Taxation is legally regulated by the Taxation Code of Ukraine. The
specific policy issues that hamper World Trade Organization (WTO)
accession are the trade legislation, protection of intellectual
property rights, government support for specific industries, and
export restrictions.
The objectives of fiscal policy in under-developed countries are
quite different than those of advanced countries. What are the
benefits of fiscal policy and what does the Ukraine government, in
particular, want it to achieve?
Full employment: This is the ideal goal, so to this end, fiscal
policy is designed to limit unemployment and underemployment.
Public spending and public sector investment are key methods used
to stimulate the economy and create jobs. Private spending can
also be encouraged using tax breaks, tax credits and other
incentives for companies to invest in communities and increase
employment.
Economic growth: A growing economy is important to most
countries, and fiscal policy has a hand in making sure this happens.
Three factors that affect fiscal policy are taxation, public borrowing
and deficit financing.
Maintain the inflation rate: The rate of inflation is the increase in
the cost of goods and services over a period. If that gallon of milk
cost you $1.00 one year, then $1.06 the next year, the rate of
inflation is 3 percent. Ideally, fiscal policy aims to keep the rate of
inflation no higher than 3 percent.
 c. How does Monetary and Fiscal Policies impact the
economy? Cite an example.
The impact of monetary and fiscal policies in Ukraine are analyzed.
In particular, interconnections between the National Bank and the
government regula-tion of the economy are investigated. 7 key phases
in monetary and fiscal policies interconnectionsare distinguished.
Effects of regulatory actions during these phases allow defining
governmentalregulation features in Ukraine. Combination of moderate
monetary expansion and balanced fiscal restriction is proven to be
most favorable for economic growth.
Fiscal policy effects in Ukraine using different identification
strategies within the framework of a vector error correction model
(VECM). For quarterly data from 2001 to 2016, we find a robust
positive impact of both government expenditure and net revenue
upon output in Ukraine, which closely corresponds with the
predictions of the Mankiw-Summers model in the case of high
demand for money in relation to consumption expenditure
combined with significant investment elasticity in relation to the
interest rate. In other respects, the fiscal policy transmission
mechanism exhibits several standard features (such as an increase
in government expenditure after a positive shock to revenue or a
widening of the budget deficit following an interest rate hike). The
results suggest the feasibility of revenue- -based fiscal consolidation
policies in Ukraine, as better tax collection may contribute to
economic growth even in the short run. Since there is a robust
conventional inverse relationship between interest rate and output,
one of the puzzling results is that government expenditure puts
downward pressure on the former, with net revenues being neutral
in this respect. Real exchange rate (RER) depreciation is behind the
decrease in output in the baseline model, but alternative
identification schemes suggest that it is likely to be contractionary
in the short run while turning expansionary in the long run.
Since 2016, the Ukrainian economy is showing signs of stabilisation,
after years of political and economic tensions. According to the IMF,
in 2018 the country recorded a 3.5% GDP growth, driven by
domestic demand as household consumption represents almost
70% of GDP. Estimates for 2019 and 2020 forecast respectively are
around a growth rate of 2.7% and 3%. The economy is expected to
slow, as tight monetary policy environment will limit economic
activity growth while upcoming significant public debt repayments
will constrain public spending.

The conflict in the eastern part of Ukraine - and more generally the
souring of relations with Russia - is still impairing the economy.
Nevertheless the government has passed several reforms in order
to foster household consumption and fiscal consolidation. The IMF
praised the country for its prudent fiscal and monetary policies and
flexible exchange rate regime that have helped reduce fiscal and
current account deficits. Considering IMF estimates for 2018, these
indicators deteriorated slightly compared with 2017 though, as
public deficit amounted to -2.6%, and current account deficit
-3.1%. Reserves have been partly rebuilt and confidence has
improved. However, despite the reduction accorded by creditors in
2015/16 and the favourable impact of growth and the primary
surplus, public debt is still high (estimated at 70.5% GDP in 2018).
World Bank estimates a 10.9% inflation rate for 2018 and 7.3% for
2019. The 2019 budget, which comprises energy tariffs increases
and savings equivalent to 2.5 percentage points of GDP, as well as
the legislation adopted to improve governance in state-owned
banks, helped the government secure an agreement with the IMF. A
14-month Stand-By Arrangement amounting to about USD 3.9
billion was approved by the IMF Executive Board on December
2018. The program will focus on four priorities: continuing the
ongoing fiscal consolidation, further reducing inflation,
strengthening the financial sector, and advancing a focused set of
 structural reforms (tax administration, privatization and
governance). Among the challenges faced by the country, the
energy access issue is paramount. The government’s top priority is
to ensure its independence from Russia. Despite effective
distribution agreements, Ukraine has turned its back on Gazprom
after the Russian company reportedly stopped supplying gas in
Ukraine.
Domestic demand grew in constant prices by almost 15% annually.
It was supported by expansionary—procyclical—fiscal policy.
Ukraine benefited from very low labor-costs, slightly lower tariffs,
and high prices of its main export goods, but at the same time
faced notably higher non-tariff barriers. Ukraine is ranked 44th
among 44 countries in the Europe region, and its overall score is
below the regional and world averages.
Progress has lagged on many much-needed but contentious
structural reforms such as cutting subsidies and raising energy
tariffs, fiscal consolidation, and the fight against corruption. As
Ukraine’s oligarch-dominated economy improved in 2018, partly
because of greater inflows of remittances, Western institutions
found that they had less leverage to press for further reforms to
make the country more prosperous, democratic, and transparent.
Ukraine also needs to develop its capital markets, privatize state-
owned enterprises, and improve both its legal framework and the
rule of law.

UKRAINE TRADING POLICY

Anders Aslund - April 01,2003
Ukraine has proceeded far in its post-Communist economic
transformation. Accesing to their Foreign exportation in the market
has been a key question for economic future. Trading policy has
gained such an important rule for every country for accelarating
growth of the country and reaching its development for the future of
the people living on that country.

As soon as Ukraine has joined the WTO(World Trade Organization), it

should try to improve its market access to the marketers by
concluding free trade agreements with other member of
Commonwealth Independent States(CIS) countries, the Europian
Union (EU), the US and other key countries.

It suffers badly, having littler trade with EU and enjoying comparative

advantages in products, whose importation the EU resists. And that
Ukraine should focus on requesting a comprehensive free trading
agreement with the EU rather that a complex and nebulous agreement
on a Common European Economic Area.

A fast economic restructuring is taking place. Advantages have grown

particulary fast: steel, food processing, agriculture, and light industry
despite of corruption and repression remain problems, business
surveys undertaken by the European Bank for the Reconstruction and
Development (EBRD) and World Bank in 1999 and 2002 suggest great
improvements. And so this country transistionally succeded their
economy.

What Trade Policy Does Ukraine Need Now?

Ukraine’s most important trade agreement is its association agreement

with the European Union, which includes a Deep and Comprehensive
Free Trade Area (DCFTA). Both the Ukrainian and European
parliaments ratified it on September 16, 2014, but the EU had already
unilaterally adopted autonomous trade preferences, granting Ukrainian
producers access to the EU market without customs tariffs as early as
April 2014. As a result, the average EU import tariff for Ukrainian
goods declined from 4.5 percent to 0.9 percent.

The other explanation is that Ukraine mainly exports commodities—agr

icultural goods and steel—to the EU, and its thirty-six main export ite
ms are subject to tiny import quotas on the European market. For maj
or Ukraine export merchandise such as chicken meat and eggs, these
quotas comprise only 1 percent of Ukrainian production.
Ukraine’s main ambition in trade policy should be to expand its exports
to the EU. The best way is to attract foreign investors to produce good
s and services not subject to EU import quotas in Ukraine. Sensibly, Uk
raine has acceded to the World Trade Organization (WTO) Agreement
on Government Procurement, which is one way of opening the EU mar
ket. The Ukrainian government needs to focus on increasing the quota
s; that process will be facilitated if the EU determines that Ukraine co
mplies with its commitments and performs the main reforms inscribed
in the DCFTA.

At present, CEFTA has seven members: Albania, Bosnia-Herzegovina,

Kosovo, Macedonia, Moldova, Montenegro, and Serbia, all of whom joi
ned in 2006-07. Its headquarters are located in Brussels. Apart from p
reparing member countries for EU accession, it facilitates trade among
them. Instead of considering setting up a new Eastern Partnership Fre
e Trade Agreement, Ukraine and Georgia should follow Moldova and joi
n CEFTA.

Philippines–Ukraine trading relations

The bilateral relations of the Philippines and Ukraine began with a form

al agreement in 1992. It From April 1992 until June 1993 the said bilat
eral relations between the two country were maintained through the P
hilippines' embassy in Poland. Prior to December 2004, Ukraine mainta
ined relations with the Philippines through its embassies in Indonesia a
nd Vietnam.

The Philippines and Ukraine have six bilateral agreements in place:

 An exchange of letters between the Ministry of Foreign Affairs of

Ukraine and the Department of Foreign Affairs of the
Philippines (entered into force 7 April 1992).
 A memorandum on cooperation between the Verkhovna
Rada and the Philippine House of Representatives (14 April 1997).
 A protocol on political consultations between the respective
Foreign Affairs bodies (14 July 2003).
 A memorandum between the State Committee of Financial
Monitoring of Ukraine and the Financial Surveillance Body of the
Philippines to exchange the financial information regarding money
laundering (12 March 2008).
 An agreement between the Council of Ministers of Crimea and
the Government of Cebu Province about trade, economic, scientific,
technical and cultural cooperation (26 November 2010). [7]
 A memorandum on cooperation between the Diplomatic
Academy of Ukraine and the Foreign Service Institute of the
Philippines (6 December 2010).