News ID: 114813
Published: 0303 GMT April 05, 2015

Ukraine at financial breaking point

Ukraine at financial breaking point

Bruised and battered after a year of armed conflict, Ukraine has been crippled by a combination of monetary, budgetary, industrial, banking and energy crises that could make it dependent on outside help for decades.

The country has suffered a series of shocks that has obliterated its fragile economy.

Its vital heavy industry, in the east, has been completely hamstrung, with production plunging by a fifth — not helped by a sharp decline in steel prices, wrote.

In addition, with foreign investors fleeing the uncertainty, the value of the local currency, the hryvnia, has fallen by around 50 percent since the beginning of the year.

"Like many emerging markets, this has a direct effect on households, businesses and public finances, because both private and public debt is denominated in foreign currency," said Julien Marcilly, chief economist at insurance firm Coface.

Gross domestic product contracted 6.8 percent last year, according to official statistics and the central bank is bracing for a decline of as much as 7.5 percent in 2015.

Ukraine is also suffering a debt crisis, with its proportion of public debt to gross domestic product (GDP) expected to spiral to 94 percent this year, according to the International Monetary Fund — from a healthy 40 percent in 2013.

"There is a banking crisis, a monetary crisis and an economic crisis that translated into a strong contraction of GDP last year. This year, there will probably also be an energy crisis," said Francis Malige, managing director for Eastern Europe and the Caucasus at the European Bank for Reconstruction and Development.

The international community, desperate to avoid a collapse in the Ukrainian economy that could be a propaganda coup for Russia, has rushed to its aid.

In April 2014, the IMF sketched out a bailout plan worth some $17.5 billion to come in a series of tranches — $5 billion of which have already been paid out.

This is part of a package of $40 billion pledged by the international community to help Ukraine back on its feet.

The European Union has offered Ukraine about €1.6 billion ($2 billion) in short-term assistance and put together a wider package worth about €11 billion.

Ukraine has encountered huge difficulties in borrowing on the open market, raising only small sums over short periods of time.

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