Economic outlook: growth continues, but fiscal risks remain
Ukraine’s economic growth is slightly accelerating: after growing by 2.5% in 2017, real GDP is forecast to increase by 3.2% this year and 3.3% in 2019. The demand-side drivers are investment and consumption, with most sectors on the supply side growing as well.
Inflation continues to run above the National Bank’s inflation target and is forecast at 9% at the end of 2018. This has led to hikes in the policy rate, which currently amounts to 17.5%. In all likelihood, inflation will only return to the target band set by the National Bank at the end of next year. The external sector is in rather good shape, as trade is recovering, the current account is in a moderate
deficit and the exchange rate is stable. However, foreign exchange reserves are stagnating at a level of USD 18 bn, which is too low. In public finances, 2017 marked the first year of a decline in the public debt-to-GDP ratio. While this is a very welcome development, certain fiscal risks exist in the current budget and need to be tackled. The continuation of the IMF programme (which expires in March 2019),
as well as the negotiation of a new programme later on, should be a key goal of the authorities, as almost USD 9 bn of public external debt service is due over the period of July 2018 to December 2019.
