Economic Prospects of Ukraine

By Yuriy Gorodnichenko (UC Berkeley)

Ukraine is living through most trying times: Maidan protests, snipers killing dozens of unarmed protesters, the fall of Viktor Yanukovych’s regime, near-default of the government, Russian annexation of Crimea, and Russian-sponsored separatist mutiny in Ukraine’s East. With the victory of the February revolution, the new government, and the new elected president Petro Poroshenko, Ukraine has solved some of its political problems but it continues to face a number of challenges on its path to building a successful democratic country.

The backbone of this success has to be good economic performance, and so a crucial question is whether Ukraine’s economy will rebound from recent setbacks. A month ago, the International Monetary Fund (IMF) gave a US$17 billion emergency loan which also unlocked loans and aid (in total close to what the IMF loaned) from other donors—individual countries (e.g. U.S., EU) and multinational agencies (e.g. EBRD). These resources can backstop Ukraine from collapsing due to short-term funding problems such as decreased fiscal revenues, depleted foreign reserves, and an economic recession. However, this support will be wasted unless Ukraine experiences robust economic growth in the medium run. In this post, I outline the key forces that, I believe, will shape the economic future of Ukraine over the course of the next ten or so years as well as discuss potential risks that can stall Ukraine’s development.