Ukraine: 2013 Article IV Consultation and First Post-Program Monitoring-Staff Report; Press Release; and Statement by the Executive Director for Ukraine

Publication Date: June 11, 2014
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Summary: KEY ISSUES Context: Weak external demand and inconsistent macroeconomic policies have contributed to a prolonged economic recession. A combination of an effectively pegged exchange rate, loose fiscal policy, and sizable quasi-fiscal losses in the energy sector has pushed the fiscal and external current account deficits to very high levels. A gradual depletion of international reserves and other buffers is making the economy particularly vulnerable to external shocks. Outlook and risks: A modest economic recovery should commence in late 2013. However, a difficult business climate and impaired external competitiveness are weighing on the medium-term outlook. The current policy mix is not sustainable as it generates large imbalances and depresses growth. The risk of a costly market-forced adjustment is high. Main policy recommendations: * Allow the exchange rate to adjust to its equilibrium level and increase its flexibility. Accelerate preparations for the introduction of inflation targeting. * Strengthen the financial system’s resilience to shocks, including by developing comprehensive contingency plans to cover potential capital and liquidity shortfalls under various scenarios. * Curtail the fiscal deficit through a reform-based current expenditure consolidation and the cancelation of unaffordable tax cuts. * Reduce the quasi-fiscal losses in the energy sector by increasing the very low household gas and heating tariffs in the context of a comprehensive energy sector reform plan, while protecting the most vulnerable households. * Launch broad structural and governance reforms to improve the business climate and boost sustainable growth.
Series: Country Report No. 14/145
Subject(s): Article IV consultation reports | Economic growth | Fiscal policy | Government expenditures | Fiscal consolidation | Fiscal reforms | Energy policy | Monetary policy | Devaluation | Flexible exchange rate policy | Economic indicators | Post-program monitoring | Staff Reports | Press releases | Ukraine

Publication Date: June 11, 2014
ISBN/ISSN: 9781498351027/1934-7685 Format: Paper
Stock No: 1UKREA2014002 Pages: 133
US$18.00 (Academic Rate:
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