Financial Comment - The West steps up its help for Ukrainian economy

In the previous blog, we described the dire situation the Ukrainian economy is currently in due to the war against Russia in eastern Ukraine, and the longer-term crisis in the country. Amid the Russian invasion in Ukraine and unclear prospects for further development of the situation, the West is now trying to step up its help for Ukraine’s economy and defense capability. Again, as the situation is very fluid, it is unclear whether the help, which is being provided or promised, will be enough, in particular, to help Ukraine avert an economic disaster.

Last week, the EU promised to give Ukraine EUR1 billion in a loan for macroeconomic stabilization subject to the International Monetary Fund’s conclusion that the country needs it. This week, Ukraine received a second installment in the amount of US$1.39 billion from the International Monetary Fund, within the US$17 billion credit line approved by the IMF in April this year. Among other things, this installment means that the IMF considers Ukraine’s economic and financial performance so far as satisfactory. If Ukraine meets this installment’s requirements, it may receive the next two installments combined together, later this year. Among the requirements is further liberalization of domestic energy prices, which will be a very sensitive issue for households, especially during the coming winter period.

At the same time, the war is posing even tougher questions. The IMF has indicated that the US$17 billion will not be enough if the war drags into 2015 and that Ukraine in this case will need at least US$19 billion more, just to maintain Ukraine Central Bank’s reserves by the end of next year. However, economic problems are not in the spotlight currently as the course of the war, which is decimating the Donbas, is being decided by big powers.

By: Ukrainian Credit Union Limited