Ukraine’s finances at breaking point

Residents collect their belongings after a cleaning operation by pro-Russians rebels in the eastern Ukrainian city of Debaltseve on February 20, 2015. Ukraine has been crippled by a combination of monetary, budgetary, industrial, banking and energy crises that could make it dependent on outside help for decades. AFP PHOTO | ANDREY BORODULIN 

In Summary

• In addition, with foreign investors fleeing the uncertainty, the value of the local currency, the hryvnia, has fallen by around 50 per cent since the beginning of the year.

PARIS, Sunday

Bruised and battered after a year of armed conflict, Ukraine has been crippled by a combination of monetary, budgetary, industrial, banking and energy crises that could make it dependent on outside help for decades.

The country has suffered a series of shocks that have obliterated its fragile economy.

Its vital heavy industry, in the east, has been completely hamstrung, with production plunging by a fifth — not helped by a sharp decline in steel prices.

INVESTORS FLEEING

In addition, with foreign investors fleeing the uncertainty, the value of the local currency, the hryvnia, has fallen by around 50 per cent since the beginning of the year.

“Like many emerging markets, this has a direct effect on households, businesses and public finances, because both private and public debt is denominated in foreign currency,” Julien Marcilly, chief economist at insurance firm Coface said.

Gross domestic product contracted 6.8 per cent last year, according to official statistics and the central bank is bracing for a decline of as much as 7.5 per cent in 2015.

Ukraine is also suffering a debt crisis, with its proportion of public debt to gross domestic product (GDP) expected to spiral to 94 per cent this year, according to the International Monetary Fund — from a healthy 40 per cent in 2013.

“There is a banking crisis, a monetary crisis and an economic crisis that translated into a strong contraction of GDP last year. This year, there will probably also be an energy crisis,” Francis Malige, managing director for Eastern Europe and the Caucasus at the European Bank for Reconstruction and Development said.

The international community, desperate to avoid a collapse in the Ukrainian economy that could be a propaganda coup for Russia, has rushed to its aid.