Ukraine a Year From Now: Two Scenarios

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Friday, 1 July 2016, 10:34

The Ministry of Economic Development has forecasted two scenarios of the trajectory of the Ukrainian economy until 2019. The related draft document was approved by the Cabinet of Ministers on July, 1.

The document outlines two scenarios — optimistic, which implies quick reforms in the economic sector with the help of Ukraine’s international partners, leading to 3% GDP growth in 2017, and pessimistic, involving slower reforms, weaker position of Ukrainian goods on external markets, and two times slower GDP growth of 1.5%.

Economic Growth
2015 2016 2017
Optim-c Pessim-c
3.1 3.2 3.5 3.1
2.4 2.4 2.5 2
1.6 1.5 1.6 1.5
6.9 6.5 6.2 5.7
-3.7 -1.8 0.8 0.3
2.5 3.1 3.5 3
1.3 0.6 1.2 0.9
-9.9 1 3 1.5

The government expects that by the end of 2016 exchange rates will be ₴26.7 for $1. In 2017, it will be ₴27.2 according to the best case scenario, and ₴30 in the worst case scenario.

Some indicators and prognoses are the same for both — in any case, it is expected that both utilities rates and social standards will go up, and the problem with restructuring the ‘Yanukovych loan’ will linger. Excise duties, VAT, and customs duties will continue to become closer to European standards.

In addition to the basic scenarios, the Ministry of Economic Dzvelopment is also considering alternative versions: optimistic scenario #2 and pessimistic scenario #2. The optimistic one involves all the best things possible happening to Ukraine: the business climate will improve, export earnings in foreign currency and investment will increase thanks to growth of the world economy. Ukraine will integrate into the European flow of goods, financial resources, and technologies, and consolidate its positions on world markets. This will relieve tension in the Ukrainian foreign currency market and decrease inflation, and lead to 5–6% GDP growth.

The pessimistic scenario suggests that GDP will fall 5%, and also includes minimal inflow of foreign capital, hryvnia devaluation to ₴38-40 per $1, inflation at the level of 21-22%. The income of the population will continue to fall, and unemployment will increase.

Ekonomichna Pravda presents the most important predictions of the government.

2015 2016 2017
Repoted Expect. Optim-c Pessim-c
External Conditions
Average price of oil, $/bbl 52.4 40 (+/-5) 40 (+/-5) 30 (+/- 5)
Average price for imported gas, $/1,000 cub.m 272 202 (+/-5) 229 (+/-5) 223 (+/-5)
World price for black metals, increase/decrease, % -21 -15 (+/-2) 7 (+/-2) 0 (+/-1)
World price for iron ore, average increase/decrease, % -42.4 -12 (+/-3) 6 (+/-2) 0 (+/-1)
World price for fertilizers, average increase/decrease, % -13.7 -28 (+/-2) 5 (+/-2) -1 (+/-1)
World price for corn, average increase/decrease, % -12 -4 (+/-3) 3 (+/-2) 0 (+/-1)
World price for wheat, average increase/decrease, % -28.7 -8 4 (+/-2) 0 (+/-1)
Internal Conditions
Increase of foreign direct investment, bln $ 3 3.5 4.5 2.5-3
Use of IMF resources by the NBU, bln $ 5.2 5.7 3.5 1.7
Level of international reserves 3.4 >3 >3 <3
Funds from international financial institutions on priority projects, bln ₴ 6.7 15 16
Monetary and Credit Policy
National Bank of Ukraine discount rate, % 22 17 (+/-2) 12 (+/-2) 14 (+/-2)
Annual average US dollar exchange rate, ₴/$ 21.8 26.7 27.2 30
End-of-year US dollar exchange rate, ₴/$ 24 27.5 (+/-1) 27.8 (+/-2) 32.1 (+/-2)
Rates Policy
Retail prices for gas for the population (December to December), % 273 45 (+/-3) 25 (+/-3)
Change of electricity rates for household consumers (December to December), % 66.9 55 55
Change of electricity rates for industrial consumers (December to December), % 20.4 8.5 (+/- 1.5) 8.5 (+/- 1.5)
Change of railroad transportation rates for passengers, baggage, and cargo (December to December), % 9 35 35
Change of rates for the population, December to December, %
Water supply 23 15 (+/-5) 15 (+/-5)
Drainage 22.5 15 (+/-5) 15 (+/-5)
Maintenance of buildings and adjacent areas 5.4 8 10
Hot water, heating 78.4 90 (+/-3) 19 (+/-3) 26 (+/-3)
Tax and Budget Policy
Personal income tax rate, % 18
Profit tax rate, % 15 (20) 18 18
VAT, % 20
State budget deficit 2.3 3.7 3
State debt ceiling, % to VAT 67.4 70 66 73.9
Government borrowing, ₴ bln 514.1 228.6 188.5 208.4
Earnings from privatization, ₴ bln 0.15 17.1 17.1 8
Minimum wage growth rate, % 4.4 13.1 13 (+/-2)
DEVELOPMENT SCENARIOS FOR UKRAINE IN 2017
External Factors
Optimistic scenario

Pessimistic scenario

Disbalance in the world, including due to aggravation of geopolitical conflicts, changes in capital flow Decrease of tension Increase of tension
Free trade area with Canada, Turkey, Israel, Council for the Arab States of the Gulf, Economic Community of West African States
Foreign trade relations with the countries of the Customs Union Decrease of tension in relations with Russia, broader cooperation with the countries of the Customs Union The situation remains unchanged compared to this year
Broader geography of energy import, in particular, natural gas import Yes, including the availability of a certain amount of Russian gas at the European-level price Yes, including completely stopping import of natural gas from Russia
Cooperation with the IMF, implementation of projects for the funds of international financial institutions Fully and timely received Delays in obtaining external financing, obtaining external financing in smaller amounts that expected due to political tension and slow reforms
Internal Factors
Tax administration Simplified The situation remains unchanged compared to this year
Launch of one-time income declaration for citizens
No decision on the court dispute with the Russian Federation regarding the restructuring of state debt
Administrative restrictions imposed in the foreign currency market by the National Bank Completely absent Partially maintained
The speed of development of microcrediting for small businesses Active Slow
Retirement payments system reform Active Slow
Increase of social standards, salaries in the budget sphere
Continuous increase of electricity rates
Improvement of the state of roads and railways Active Slow
Restoration of damaged infrastructure in the eastern parts of the country Active Slow

Nota Bene! Publications of the English version of Ukrayinska Pravda are not verbatim translations of the source publications from the Ukrainian or Russian language versions of our website. For the sake of clarity and editorial effectiveness our translators might take the liberty of shortening and retelling parts of the source publications. Please consult the text of original publication or the English editorial staff of Ukrainska Pravda prior to quoting our English translations.

Original article by Halyna Kalachova, Ekonomichna Pravda; translated by Tetiana Vodianytska

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