FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT APRIL 2009
UKRAINIAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
The turbulence that has characterized the
domestic political scene for the past several
years is likely to persist over the forecast
period. In common with a succession of
governments before it, the "Orange"
administration that was formed in December
2007 proved to be of short duration, raising
the prospect of either the creation of a new
coalition government, or another early
parliamentary election. Attention will
increasingly focus on the next presidential
election, which is due in early 2010. The
election will be a source of tension between
the Orange forces, as well as between them
and the opposition, especially in view of the
lack of clarity about the constitutional division
of power in the country. flexibility than in recent years. Support to the
domestic banking sector will be a top priority.
In the area of structural reform, invigorating
the privatization process is likely to receive
heightened attention, and agricultural land
reform is also a possibility. The IMF is also
said to be urging the authorities to bring
domestic gas prices into line with import
prices by 2012.
Following Russian military intervention in
Georgia, the risk that Russia will seek to stoke
separatist sentiment in Crimea, where ethnic
Russians are in the majority, has increased,
especially if Ukraine continues to press for
closer engagement with NATO and for the
withdrawal of the Russian Black Sea Fleet
from Crimea after 2017. Inflation is likely to remain over 20% year on
year at the end of 2008, from 24.6% in
September, under the impact of the domestic
financial crisis, which has seen a sharp
depreciation in the currency. The inflation
forecast for 2009-10 is tentative. On the one
hand, the sharp slowing of domestic demand,
combined with lower global prices for food, oil
and steel, will exert downward pressure on
prices. On the other hand, a significantly
weaker exchange rate will increase the cost of
imported goods, and the cost of gas imports
is likely to rise significantly again. Under
pressure from the IMF, the authorities are
likely to pass on the increased cost of gas
imports to households to a greater extent than
in the past. Overall, although inflation should
slow fairly quickly during 2009, average
annual inflation is expected to remain in
double digits, at around 12%, remaining at
around this level in 2010 as the economy
slowly begins to recover.
Pending parliamentary approval of a number
of financial and economic stabilization
measures, the IMF has yet to announce the
terms of the US$ 16.5 billion 24-month stand-
by arrangement that was provisionally agreed
with the Ukrainian authorities in late October.
However, from various comments by IMF
representatives and government officials, it
appears likely that the Fund will require a
tightening of fiscal policy. The IMF is also
likely to require a tight monetary policy and a
significant reform of exchange-rate policy, to
allow significantly greater exchange-rate
Economic Performance
Following the spread of the global financial
crisis to Ukraine, the sharp deterioration in
economic performance is expected to be felt
in the final quarter of 2008, which will lower
growth for 2008 to an estimated 5.3%, from
the 6.9% reported for the first nine months of
the year.
Key Information Contacts
Securities and Stock Market State Commission www.ssmsc.gov.ua
Ministry of Finance www.minfin.gov.ua
State Property Fund of Ukraine www.spfu.gov.ua
State Committee of Financial Monitoring www.sdfm.gov.ua
State Commission for Regulation of Financial Services’ Market in Ukraine www.dfp.gov.ua
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The intensification of the global financial crisis
in recent months has led to a sharp drop in
steel prices and has sharply reduced
Ukraine’s access to external borrowing.
Against this background, the hryvnya has
fallen sharply on the interbank market, falling
outside even the new corridor of
HRN4.95:US$1 (±8%) announced by the
National Bank of Ukraine (NBU, the central
bank) in early October. Under pressure from
the IMF, and with limited foreign-exchange
reserves of its own, the NBU is likely to adopt
a significantly freer exchange-rate policy over
the forecast period. It is forecast that for the
current-account deficit in 2009 will increase by
4% of GDP. The deficit is expected to decline
further, to below 3% of GDP, in 2010. We
have reduced our forecast for the current
transfers surplus, as inflows of remittances
are likely to be affected by the worsened
growth outlook in the countries where
Ukrainians work abroad.*
* The Economic Intelligence Unit Ltd.November 2008