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8 October, 2013 15:24   ▪  

The World Bank: Without urgent reforms, Ukraine's budget and current-account deficits will widen beyond the government’s control

A weak global environment and delays in domestic policy adjustments have led to widening and unsustainable macroeconomic imbalances in 2013, a new World Bank Economic Update for Ukraine says.

“Ukraine saw decline in economic activity in the first half of 2013, with real GDP falling by 1.1 and 1.3 percent y/y in Q1 and Q2 respectively. In the second half of this year, the World Bank projects a slight increase in real GDP growth because of good agricultural harvest and a low statistical base. Even with this improvement, given the decline in the first half of the year, 2013 growth rate is projected to be close to 0 percent,” The World Bank reports

“Ukraine will benefit from taking steps to ensure a sustainable macroeconomic framework by lowering its fiscal deficit and adopting a flexible exchange rate policy. In addition, key structural reforms to spur private enterprise and strengthen the energy sector are needed urgently to jumpstart growth,” Qimiao Fan, World Bank Director for Belarus, Moldova and Ukraine said.

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In particular, the World Bank highlighted the urgent need to reform residential gas and heating tariffs and better target social assistance to the poor in Ukraine. While Ukraine faces one of the highest average costs of gas supply, its residential gas and heating tariffs are among the lowest in Europe.

The World Bank said that an adjustment is inevitable.  The only question is whether Ukraine will reform now or will adjustment be delayed. Stressing the urgency of reforms, the World Bank argued that a delayed adjustment will be more painful leading to a slower recovery. “On the other hand, if the authorities move quickly to undertake key reforms, they will lay the foundation for a strong recovery,” Fan said. 

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