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28 March, 2013 10:00   ▪  

Timothy Ash: Ukrainian government should quickly lock in external financing, either from the Russians or from IMF

After record snowfall Ukraine can do nothing to prevent the economy falling into recession in the first quarter of 2013, after GDP growth of 0.2 per cent in 2012, writes Financial Times.

“But it does increase the urgency for Kiev to find external economic support, if not from Russia, then from the International Monetary Fund, which had a delegation arrive in town on Wednesday. Even before the snow, factories were struggling – industrial output fell 6 per cent in February in the ninth consecutive monthly fall. That makes a GDP contraction in the first quarter almost inevitable,” FT notes.

“Slovenia, Malta, and perhaps Ukraine are most exposed in my view now for contagion risk. Ukraine is exposed through the risk of individual credit events, i.e. while overall Ukrainian exposure is small the risk of a few local oligarchs suffering cash flow problems now via exposure to Cyprus should not be under-stated. Given Ukraine’s broader frail macro/policy environment, it would not take much undermine sentiment which could gather momentum and create broader systemic risks – another reason why the Ukrainian government would be well advised to quickly lock in external financing, either from the Russians/IMF,” Timothy Ash, head of emerging market research at Standard Bank, wrote in a note to investors.

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“All this increases the pressure for successful talks with the visiting IMF mission that arrived in Kiev on Wednesday for a two-week visit. And this gives President Viktor Yanukovich’s government yet another chance to do the right thing: shore up confidence by accepting tough but necessary bailout conditions that are required to put an economy still recovering from a 15 per cent GDP drop in the global crisis on more solid footing for the future. All Ukraine-watching market observers are now focusing for signs of whether Kiev is finally ready to accept the main IMF bailout condition: removing costly and unsustainable across-the-board subsidies for households on domestically produced natural gas,” FT underlines. 

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