Ukraine’s withering economy
- New Europe Investor
- September 10, 2014
The drawn out battle between Ukraine and Russian separatists in the east of the country has to date cost over 2,600 civilian lives, and is having ever most serious consequences for the country’s economic outlook.
The initial $17 billion IMF bailout in March of this year seems a drop in the ocean from where the country is now, at war and becoming ever more paralised as a result.
Initial IMF estimates suggested a 5% drop in output this year, which has recently been increased to 6.5%, and some analysts are putting as high as 8%. One region in the East, Dombass has seen a 20% drop in output already, and the loss of Crimea has been estimated at 3.7% loss of overall GDP. Initial estimates also assumed a quick resolution to the war and therefore many predicted a quick bounce in the economy early next year. However, the war rumbles on and predictions deteriorate with it.
The country’s Prime Minister, Arseny Yatsenyuk stated the rebuilding cost of infrastructure has run up to $8 billion dollars, most of this in the East where fighting is taking place.
To add salt to the wounds, Ukraine was issued a Eurobond from Russia with favourable terms during a time of more favourable relations before trouble began. However, Russia have the right to demand repayment of this bond if Ukraine’s debt to GDP ratio exceeds 60%. Considering the IMF have predicted that Ukraine debt to GDP ratio will go from 40% to at least 62% this year, Russia will appear to have yet another upper hand on a country already on its knees.