SUMMARY POINTS  

        (1)    Real sector performance improved in August despite a more challenging external environment.

        (2)    Industrial production growth accelerated to 8.9% yoy, benefiting from stronger domestic demand.

        (3)    Ukraine may have the second largest harvest this year; however, due to grain export duties and a good harvest in neighboring countries, Ukraine’s grain export potential remains untapped.

        (4)    State budget deficit amounted to UAH 8.6 billion, or 0.8% of full-year forecast GDP. However, due to higher Naftogaz imbalances, the broad fiscal deficit is projected to reach 4% of GDP in 2011.

        (5)    The government amended the pension law in September and developed a draft 2012 budget law, targeting a general government sector deficit of 2.5% of GDP. However, the IMF is unlikely  to restore financing without an increase in natural gas tariffs to the population.

        (6)    Thanks to a generous harvest, consumer inflation eased to 8.9% in August but is likely to speed up to about 10-11% yoy at the end of the year.

        (7)    High volatility on international financial markets, worse economic growth prospects and vulnerability of the Ukrainian economy to external shocks caused Hryvnia depreciation pressures to  intensify in August-September.

        (8)    The National Bank of Ukraine is following a tight monetary policy to both reduce inflationary pressures and maintain Hryvnia stability.

        (9)    The current account gap widened to $3.3 billion over January-August, or 2% of full-year GDP, and is projected to reach 4.5% of GDP in 2011.

        (10)  Ukraine’s external debt financing needs remain high. From July 2011 to June 2012, Ukraine has to repay more than $53 billion.

        (11)  With the current level of international reserves at $38 billion and assuming there is no major external shock, Ukraine’s foreign currency needs look manageable. However, as external risks are high, restoration of cooperation with the IMF looks crucial to reduce Ukraine’s vulnerabilities

ANALYTICAL REPORT: by Olga Pogarska, Edilberto L. Segura

SigmaBleyzer Private Equity Investment Firm & The Bleyzer Foundation (TBF), Kyiv, Ukraine

U.S.-Ukraine Business Council (USUBC)