eco TV Week

Ukrainian presidential election: staying the economic course

4/5/2019

Whatever the outcome of the presidential election runoff due on April 21, Ukraine is unlikely to deviate significantly from its trajectory in terms of economic policy.

Sylvain BELLEFONTAINE

TRANSCRIPT // Ukrainian presidential election: staying the economic course : April 2019

Whatever the result of the second round to be held on April 21st, Ukraine shall keep the same course in terms of economic policy guided by the IMF recommendations.

On Sunday, March 31st, Porochenko, the current president, and Zelensky, a comedian with no political experience, were designated to compete against one another. Volodymyr Zelensky's economic propositions remain vague.

The next president will probably have to be pragmatic. Indeed, the Ukrainian economy
remains fragile despite its stabilization since the crisis in 2014-2015. It is due to major geopolitical risks.

 

Last December, the signature of a new 14-month IMF program reassured international investors
about Ukraine's capacity to honour major external financial commitments in 2019.

In return, the government accepted to maintain its efforts in terms of economic policy. Consolidate public finances, reduce inflation, maintain a flexible exchange-rate regime, strengthen the financial sector, fight against corruption and reform the sectors of energy and agriculture.

Dependent on official creditors and international capital markets, Ukraine has to hold its course
in terms of macroeconomics. The IMF program shall be renewed in 2020.

In this scenario, our forecast is a 2.5% growth in 2019-2020. It was 3.3% in 2018. Consumption should be sustained by increasing wages, credit and lower inflation while investment should suffer from the election cycle. Legislative elections are to be held in October.

The activity in agriculture will slow after record crops in 2018. The mining sector, should suffer from logistical problems in the eastern part of the country, and a less favourable international context.


The current deficit should remain high at around 4% of GDP. Inflation should remain above the upper limit set by the Central Bank at 6%. Risks on inflation are linked to increasing energy prices and potential pressures on the Hryvnia.

However, despite major political and geopolitical risks, the accommodative monetary policy in Europe and in the United States compared with still tight monetary policy in Ukraine combined with the support from official creditors, should underpin investors’ confidence in the coming months.

ABOUT US Three teams of economists (OECD countries research, emerging economies and country risk, banking economics) make up BNP Paribas Economic Research Department.
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