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Experts look for economic positives, worried over losing IMF support

Experts look for economic positives, worried over losing IMF support

An employee works on the field on April 13 in Kyiv Oblast. Agriculture has been one of the most successful sectors in Ukraine in attracting investment.Photo by Oleg Petrasiuk

Although Ukraine’s economy is still struggling, leading experts predict economic growth in 2018.

All the same, the country’s stalled anti-corruption drive is putting its economy, and the chance of further support from Ukraine’s financial backers, in danger, experts said during a briefing in Kyiv on April 20.

Since 2013, Ukraine’s exports have collapsed, withering by 40 percent during the 2013-2015 period, while the economy shrank by 33 percent over the same time. The devaluation of the hryvnia peaked at 43 percent at the end of 2015, and foreign investment dried up.

But a recovery has started, and Ukraine could still be a good bet in the long if it follows through with its reforms, Edilberto Segura, chief economist at private equity firm SigmaBleyzer said at the briefing.

“The best sectors to invest in Ukraine are: oil and gas, renewable energy, agriculture and agribusinesses, and tourism,” said Segura, who previously held key positions at the World Bank for 25 years, working with 35 different countries

SigmaBleyzer is one of the largest private equity investors in Eastern Europe, and has been an investor in successful businesses projects such as AgroGeneration, Cosmo, Volia, and Covalact.

Ukraine’s real gross domestic product is expected to grow by 3 percent in 2018, reaching $113 billion by the end of the year, Segura said. The inflation rate is also expected to ease to 9 percent – almost five times less than it was in 2015. Ukraine’s long-term inflation target, for 2020, is 5 percent, plus or minus 1 percentage point.

The country’s overall business climate has improved as well, according to the World Bank’s Ease of Doing Business ranking: Ukraine has jumped from 112th place in 2014, to 76th this year.

But the improvements were largely due to the financial help coming from the International Monetary Fund, and the fund has since put lending to Ukraine on hold for more than a year due to a lack of reform in the country. It has so far disbursed only about half of the $17.5 billion envisaged in a four-year program for Ukraine, which is set to expire at the end of March 2019.

And according to a World Bank report published on April 10, Ukraine will need to borrow an additional $18 billion in the next two years – including $8 billion from external sources.

Securing the additional lending from the IMF will be a challenge for Ukraine, as the country will need to establish an anti-corruption court and further fight corruption, Segura said.

Ukrainian President Petro Poroshenko has continually dragged his heals on setting up the court, and most experts at the briefing thought he would try to delay it further.

“To implement the anti-corruption court and to accept all of the recommendations of the Venice Commission would mean that 70-80 percent of all politicians would end up in jail,” said Alfred Praus, president of the Ukrainian-Austrian Association. “That means this (anti-corruption court) law will be blocked, and the IMF will not give the next tranche – this will be the worst scenario.”

Peter O’Brien, the country manager of EuroCape Ukraine, a renewable energy company, agreed: “This parliament will not pass the anti-corruption legislation, because most of the representatives in parliament would face sanctions.”

Segura, however, believes that the next IMF tranche will be approved, as the fund “doesn’t want Ukraine to collapse.”

His main advice is for Ukraine’s lawmakers to follow through with the privatization of the country’s more than 3,000 state-owned enterprises, lifting the land moratorium, and continuing with the decentralization process.

“Corruption is just a reflection of something deeper that is going on in this country – it’s a consequence of a post-Soviet oligarchy,” he said.

 

Source: Kyiv Post 

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