Ukrainians prepare for further economic hardships

Despite predictions of slight economic growth, Ukrainians feeling the financial burden of war.

AP Photo/Alexander Polegenko
The World Bank has predicted that Ukraine's economy will grow by one percent during 2016, just half the growth projected by the country's government and financial advisers [Alexander Polegenko/AP]

Kiev, Ukraine – Kiev does not yet feel like the capital of a country at war.

On the surface, the city is functioning much as before, with the gatherings of uniformed men preparing to head back east the main indication that all is not well.

But if you move away from the centre of the city, where the famous Euromaidan protests took place and where international cafes and restaurants line the streets, and head to the outskirts, the residents of Kiev are starting to feel the combined affects of war and a struggling economy.


Alexandra Melnyk lists what is becoming more expensive as the war drags on –  rice, buckwheat, milk, eggs, gas, electricity, hot and cold water.

“There are idiots in charge of this country,” she says. “They are driving Ukraine into an abyss.”

Like many Ukrainians who criticise the government, Alexandra is unwilling to give much information about herself, but does say that she is already working two jobs in order to support her large family.

“I can’t take on any more or I wouldn’t sleep. We just have to make it work now.”

Small growth

The World Bank on Wednesday predicted that Ukraine’s economy would grow by 1 percent during 2016 – just half the growth projected by the country’s government and financial advisers.

That comes after a contraction of 12 percent in 2015.

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“After a 12 percent contraction in 2015, Ukraine’s economy may rebound modestly in 2016-18, supported by an easing of the conflict in the east and continued progress on its IMF-backed reform programme,” the World Bank said in a report on global economic prospects.

The incremental gains come with a major restructuring of Ukraine’s debt as well as several fiscal measures, including job losses within the government, pension cuts and more expensive energy rates.


The World Bank added that the growth was dependent on “geopolitical tensions”, meaning that if the war with Russia escalates into a full-blown conflict once again, Ukraine’s economy will begin to backslide.

“The moderate growth improvement in the forecast period over 2015 depends on the management and mitigation of several key vulnerabilities, including persistent geopolitical tensions, sustained low oil prices, continuing policy uncertainty, and challenging external financing conditions,” the report said.

Between 2010 and 2014, Russia accounted for about a quarter of Ukraine’s exports, and so the continued tension between the countries is taking its toll.

In addition to a decrease in trade, Ukraine remains in a debt dispute with Russia, to whom it owes $3bn.

On January 1, Russia started legal proceedings against Ukraine over non-payment of the debt and added that it would file a lawsuit in English courts.

The announcement came a month after Kiev issued a moratorium on paying the debt, which is part of a larger $15bn payment agreement that was reached between Russian President Vladimir Putin and Ukraine’s former leader Viktor Yanukovich.

It was made in December 2013, as Yanukovich backed out of closer economic ties with the European Union, a move which in turn led to the Euromaidan movement, and eventually the war in Ukraine’s east.

Crisis beyond war

It is not just the war that is to blame for Ukraine’s financial difficulties, however.

Tymofiy Mylovanov, an economist, told Al Jazeera that while the crisis has been stabilised, the future of the country remains uncertain.

“The economy started to struggle well before Maidan in the winter 2013-2014. The previous government has left the economy in a critical situation. The rampant corruption and poor governance created [the] foundation for the current economic crisis. Of course, the war was an important factor that made the crisis much worse,” he said.

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“There are multiple projections ranging from cautiously to very optimistic. Some of these are explicit while others are implicit in the promises of the government and the politicians. In my opinion, much uncertainty about the future of the Ukrainian economy remains in place.”

He added that war was not the only unknown factor that could prevent Ukraine’s recovery.

Our salary is the same, and things cost sometimes 70 percent more than they did. The war is only 30 percent of the reason for our problems, the rest is policy amateurs.

by Alexandra Melnyk

“The continuing risks that might prevent recovery of the Ukrainian economy include: the war; internal political unrest; lack of or slow progress in combating corruption and conducting structural reforms; and scepticism of the investors and the public that the Ukrainian economy is [back] on track.”

“In addition, there is uncertainty about which path the new Ukrainian government will take, either business as usual or reforms.”

The Ukrainian government has been vocal about the reforms it plans to impose.

At the end of 2015, Ukraine agreed on a budget for the coming year that included tax increases on things such as alcohol and cigarettes, resulting in a series of policies approved by the IMF.

The final budget was a compromise, after two potential policies had been put forward.

One, an IMF-approved series of spending cuts, which had been presented by the finance ministry, risked being overshadowed by a politically more appealing plan of tax cuts which, if passed, would have risked the IMF withdrawing from its planned $40bn bailout of Ukraine.

On Monday, January 11, Ukraine’s finance minister, Natalie Jaresko, announced that the IMF had approved the compromise package, local media reported.

“During the consideration [of the draft budget] in the Verkhovna Rada [the Supreme Council of Ukraine], the deputies, first of all, introduced a number of changes that had not been agreed upon with the IMF, and secondly, they refused to support the new Tax Code, which was endorsed by the president at the National Council of Reform and that formed the basis of the draft state budget, which the ministry of finance had agreed with the IMF,”  Ukraine Today quoted Jaresko as saying.

Despite these reservations, “the IMF agreed that the adopted budget is generally in line with the objectives of the programme,” she added.

For Alexandra Melnyk, though, Ukraine’s money concerns are far from over.

“Our salary is the same, and things cost sometimes 70 percent more than they did.

“They war is only 30 percent of the reason for our problems, the rest is policy amateurs.”

You can follow Philippa H Stewart on Twitter: @flip_stewart

Source: Al Jazeera