Ukraine Ukraine at a Glance: 2002-03
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COUNTRY REPORT Ukraine Ukraine at a glance: 2002-03 OVERVIEW Efforts by both pro- and anti-presidential forces to gain the upper hand in the parliamentary election due by March 2002 will increasingly dominate the political scene. The president, Leonid Kuchma, and his parliamentary allies are likely to succeed in using their superior administrative and media resources to limit the gains of their opponents. The government will remain in power until the 2002 election and is unlikely to roll back its predecessor’s reform achievements, although electoral politics will preclude further significant reforms. The economy will grow at a more moderate pace in 2002-03, following buoyant growth in 2001. Year-end inflation will rise slightly to 12% in 2002, owing to further price liberalisation and election- related policy loosening, before falling again in 2003. Sustained export growth will ensure current-account surpluses in 2002-03, although these will narrow because of strengthening import demand and continued real currency appreciation. Key changes from last month Political outlook • The former prime minister Viktor Yushchenko looks increasingly likely to try to build an alliance for the 2002 election that is more centre- than reform-based. Economic policy outlook • Multilateral financing has resumed as expected, and should now permit completion of Ukraine’s Paris Club debts. The narrowing of the budget surplus in August underlines the Economist Intelligence Unit’s forecast that the government is likely to end the year with a slight budget deficit. Economic forecast • Preliminary trade data for the start of the third quarter has prompted a slight revision in our trade surplus forecast for this year. We now expect a current-account surplus of 4.6% of GDP in 2001. Continued deflation in August will permit even greater disinflation in 2001 than originally expected and we now anticipate an end-year inflation rate of 8.5%. October 2001 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through our digital portfolio, where our latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. 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Ukraine 1 Contents 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2002-03 7 Political outlook 9 Economic policy outlook 10 Economic forecast 14 The political scene 17 Economic policy 22 The domestic economy 22 Output and demand 24 Employment, wages and prices 26 Financial indicators 27 Sectoral trends 30 Foreign trade and payments List of tables 10 International assumptions summary 11 Gross domestic product by expenditure 13 Forecast summary 19 Consolidated government budget 19 2002 consolidated budget proposal 22 Main economic policy indicators 23 Major indicators, 2001 24 Cumulative inflation, Jan-Aug 26 Banking sector indicators, May 2001 27 Industrial output, 2001 27 Manufacturing output, Jan-Aug 2001 28 Subsectoral contribution to industrial growth, Jan-Aug 2001 28 Crude steel output 29 Agricultural output, Jan-Aug 29 Main macroeconomic indicators 31 Merchandise trade, Jan-Jul 31 Composition of trade, Jan-Jun 2001 EIU Country Report October 2001 © The Economist Intelligence Unit Limited 2001 2 Ukraine 32 Direction of merchandise trade, 2001 33 Balance of payments 34 Main external indicators List of figures 13 Gross domestic product 13 Exchange rates 19 Consolidated budget balance 23 Real GDP 24 Consumer prices 25 Arrears 26 Exchange rate EIU Country Report October 2001 © The Economist Intelligence Unit Limited 2001 Ukraine 3 Summary October 2001 Outlook for 2002-03 Extensive political manoeuvring related to the March 2002 parliamentary election will dominate the political scene until mid-2002. Although the new parliament is unlikely to include a solid anti-presidential majority, the position of the president, Leonid Kuchma, will remain less than secure in 2002-03, prompting him to undertake additional efforts to prevent his removal. This will preclude an improvement in political efficacy and hamper political reforms. Economic growth will ease in 2002-03 but remain at around 4% of GDP or above. Relatively sound fiscal and monetary policy will prevent a return to significantly higher inflation and will support the stability of the currency. Stronger import growth will reduce the size of the current-account surplus. Economic policy The IMF has agreed to resume its stalled lending programme. The government recorded a narrow surplus on the state budget over the first eight months of 2001 despite lower than targeted privatisation revenue inflows. The govern- ment’s 2002 budget, which proposes a consolidated budget deficit target of 1.7% of GDP, is before parliament; for the first time it does not count privatisation proceeds as revenue. As shown by the delays in the sales of telecommunications and electricity utilities in 2001, the government’s privatis- ation targets have proved notoriously unreliable. The domestic economy Ukraine’s real GDP increased by 10.8% year on year between January and August 2001, fuelled by a broadly based 16.9% increase in industrial production. Year-on-year agricultural output growth jumped sharply in July as a result of a bumper grain harvest. The nominal appreciation of the hryvnya has accelerated because of high levels of foreign-currency inflows. Deflation in July and August brought total consumer price inflation since the start of the year down to 3.3%. The strength of Ukraine’s economic recovery has brought a sharp rise in real wages, a drop in official unemployment and increased bank lending. Never- theless, wages and living standards remain low in absolute terms. Foreign trade and Ukraine’s foreign trade surplus equalled US$728m over the first eight months payments of 2001, compared with a deficit of US$162m recorded during the year-earlier period. In contrast with 2000 the sharp rise in exports in 2001 has not depended on rapidly rising steel sales. Import growth has remained subdued, primarily because of a fall in energy import expenditure. The current-account surplus reached US$845m over the first half of 2001, up from US$292m over the first half of 2000. Ukraine’s strong external position has allowed reserves to return to a level seen before the 1998 crisis. Efforts to restructure Paris Club debts are nearly complete. Editors: Stuart Hensel (editor); Fiona Mullen (consulting editor) Editorial closing date: October 3rd 2001 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule EIU Country Report October 2001 © The Economist Intelligence Unit Limited 2001 4 Ukraine Political structure Official name Ukraine Legal system A new constitution was approved by the Verkhovna Rada (Supreme Council— parliament) on June 28th 1996 National legislature Verkhovna Rada, a unicameral assembly of 450 deputies National elections March 29th 1998 (parliamentary); October 31st and November 14th 1999 (presidential); the next parliamentary election is scheduled for March 31st 2002 Head of state President, currently Leonid Kuchma, elected with 56% of the popular vote in November 1999; next presidential election due by 2004. National government Led by the prime minister, currently Anatoly Kinakh, appointed in May 2001 Main political factions Democratic Union (24 seats), Motherland (26), United Social Democratic Party of in parliament Ukraine (36), People’s Democratic Party (16), Ukrainian