PAST, PRESENT AND FUTURE OF UKRAINE

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1 PAST, PRESENT AND FUTURE OF UKRAINE European Economic Senate Going am Wilden Kaiser May 7, 2015

2 Introduction I. Historical Background II. Present Development III. Future Outlook IV. Challenges V. Conclusion

3 Historical Background

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6 Historical Overview 1991: Independence A decade ago: Orange Revolution 2014: Maidan protests Today: Conflict in the Eastern region

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8 Ukraine since its independence has been a story of Too many lost opportunities and too much disappointment, Economic mismanagement and half-hearted reforms holding back growth, Corruption and oligarchy undermining the market economy, and Episodes of voter fraud and abuse of power undercutting democracy.

9 Slovakia s GDP by origin (in % of GDP) % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Agriculture Industry Construction Services Data Source: Slovak Statistical Office

10 Ukraine s Economic Growth = GDP in Belarus Poland Slovak Rep. Estonia Latvia Russia Hungary Bulgaria Ukraine Source: IMF

11 USD / gigacalorie Ukraine s Heating Tariffs Cost recovery level Lithuania Estonia Latvia Romania Moldova Poland Bulgaria Armenia Russia Ukraine Belarus Source: Ukrainian Authorities

12 Present Development

13 International Rescue Package in Iceland 6 bn USD, SBA - IMF, Scandinavian countries and Russia Poland US $ 20.5bn credit line for strongly performing economies requested Hungary EUR 20bn Standby agreement with the IMF (12.5 bn ). World Bank (1 bn ) and EU (6.5 bn ) SEE/CEE Lithuania Stand-by arrangement with the IMF Latvia 1.7bn Standby agreement with the IMF in talks with EU on additional 1 bn Belarus US $ 2.5bn Standby agreement with the IMF Ukraine US $ 16.4bn Standby agreement with the IMF Bosnia-Herzegovina NB governor expressed interest in appr. EUR 1bn Montenegro EUR bn requested in case downturn further deepens Serbia EUR 0.4bn Standby agreement with the IMF Romania EUR 20bn Standby agreement with the IMF (13 bn ). EU (5 bn ). World Bank (1 bn ) and EBRD (1 bn ), no board approval yet Turkey US $ 10.8bn Standby agreement with the IMF (since 2001) Source: IMF, HVG

14 Total External Debt Source: IMF and Ukrainian Authorities

15 Challenges

16 Ukraine s Business Environment Enforcing Contracts Trading Across Borders Resolving Insolvency Starting a business Dealing with Construction Permits Getting Electricity Registering Property Paying Taxes Getting Credit Ukraine Protecting Investors Best from CESEE Source: IMF and Ukrainian Authorities

17 Ukraine s Doing Business Business sophistication Market size Innovation Institutions t Infrastructure Macroeconomic environment Health and primary education Technological readiness Higher education and training Financial market development Ukraine Labor market efficiency Goods market efficiency Best from CESEE Source: IMF and Ukrainian Authorities

18 Future Outlook

19 % of GDP Slovakia s Economic Performance Real GDP Inflation Unemployment rate Current Account Balance Overall Balance Data Source: IMF Working Paper

20 Real GDP Growth Source: IMF and Ukrainian Authorities

21 Inflation Source: IMF and Ukrainian Authorities

22 Primary Balance Source: IMF and Ukrainian Authorities

23 Effective Interest Rate Source: IMF and Ukrainian Authorities

24 Credit Balances Deposit Credit NPLs at end-dec 2014 Household Total Household Corporate Total Household Corporate Donetsk Luhansk Rest of Ukraine Ukraine, total Source: IMF and Ukrainian Authorities

25 Capital to Total Assets Source: IMF and Ukrainian Authorities

26 Total Financing Needs Source: IMF and Ukrainian Authorities

27 Overall Balance (including Naftogaz operational deficit) Source: IMF and Ukrainian Authorities

28 Current Account Balance Source: IMF and Ukrainian Authorities

29 Hryvna per U.S. Dollar (end of period) Source: IMF and Ukrainian Authorities

30 Real Effective Rate (CPI-based, 2010=100) Source: IMF and Ukrainian Authorities

31 Total External Debt Source: IMF and Ukrainian Authorities

32 Conclusion

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35 Conclusion (1) The current situation entails: Uneven evolution of Ukraine s economic transformation since achieving nationhood, How a set of serious, but manageable economic difficulties descended into a full-blown crisis in the face of confrontation in the country s Eastern region, and Ukraine s response to that crisis The immediate efforts to stabilize the situation, and The longer-term program to restore growth and transform the economy

36 Conclusion (2) Current objectives are to: Stabilize Ukraine's deeply destabilized finances, Restore growth that has been stagnant for several years, and Support the long-overdue modernization that has lagged behind peers in the region since independence 23 years ago

37 Conclusion (3) What factors / aspects should be considered? A strong adjustment program that will stabilize the macroeconomics of the country Positive development of all macroeconomic indicators Intangible assets Comparative advantages Potential markets Integration with the large European market Development of peaceful coexistence on the border between the West and the East

38 Thank you for your attention Source: Kijev s Pictures

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