A look at Ukraine's economic hole
Money will certainly be forthcoming for Ukraine. Whether it will come soon enough and in large enough quantities is another matter.
The Economist has one of the best general overviews of the state of the Ukrainian economy I've seen so far. First, the highlights:
- The Ukrainian hryvnia has lost 25 percent of its value against the dollar since mid-January (the currency is worth about 1/5th of what it was when it was issued in 1996).
- Ukraine has recently borrowed short-term cash at 15 percent. (Poland pays less than 3 percent currently).
- Ukraine's central bank reserves were at $40 billion in 2011. Today, they're at about $12 billion, largely due to efforts to try to protect the hryvnia.
- State gas company Naftogaz sells natural gas to consumers at a 75 percent discount.
- Ukraine has starved infrastructure investment in favor of a bloated civil service. That would give anyone thinking about investing in Ukraine, political turmoil or not, good reason to invest elsewhere.
- The Economist cites an IMF estimate that 50 percent of Ukraine's economic activity is in the "shadow economy." That's the bit where government's don't/can't collect taxes.
- Ukraine needs about $25 billion this year to fund its current account deficit, estimates indicate. Otherwise, default becomes very likely.
The Economist story also has embedded a good chart that shows just what a laggard Ukraine has been since 1992 compared to its ex-Soviet peers.
Money will certainly be forthcoming for Ukraine. But whether it will come soon enough and in large enough quantities is another matter. The EU is considering $15 billion in loans and grants to be provided over a period of years, and the IMF is looking at lending – with strict conditions attached. In 2010, the IMF reached a $15 billion loan deal with Ukraine that required it, among other things, to slash the natural gas subsidy. The politically wobbly Ukraine government balked at ending the politically popular subsidy, and the IMF scrapped the deal in 2011.
Ukraine's financial needs have only grown since, and the condition of its economy has deteriorated. Obviously, the current government, with Russia occupying part of its territory and discontent with the overthrow of the last elected government high in some regions, is even weaker now than in 2011.