## Stabilizing Ukraine

_IMF Blog, April 30, 2014_

## Source details

**Canonical URL:** [Stabilizing Ukraine](https://www.imf.org/en/blogs/articles/2014/04/30/stabilizing-ukraine)

## Other formats

- [Markdown version](/en/blogs/articles/2014/04/30/stabilizing-ukraine/index.md)
- [Structured JSON version](/en/blogs/articles/2014/04/30/stabilizing-ukraine/index.json)
- [Bundle manifest](/en/blogs/articles/2014/04/30/stabilizing-ukraine/bundle-manifest.json)

## Bibliographic details
- Authors: Reza Moghadam
- Published: April 30, 2014

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### Overview and priorities
- Author: Reza Moghadam
- Date: April 30, 2014
- Core assessment: Ukraine entered the acute crisis with pre-existing deep structural problems that made it vulnerable to funding shortfalls, currency flight, bank deposit withdrawals, and surging risk premiums.
- Program recognition: The economic adjustment program accepts that output will contract and inflation will remain high in the initial phases—these outcomes are described as unavoidable in the current circumstances.
- Five main elements of the program: Exchange rate flexibility; Banking stability; Fiscal policy; Energy policy; Transparency and business environment.

### Exchange rate flexibility
- Policy action:
  - The hryvnia has been allowed to float after years of exchange rate rigidity, falling foreign exchange reserves, currency controls, and high devaluation expectations.
  - The central bank will shift its focus to controlling inflation, initially by targeting the money supply and later by shifting to inflation targeting.
- Rationale and expected benefits:
  - Restore competitiveness and support exports and growth.
  - Avoid a destabilizing loss of reserves.
  - Provide a shock absorber for the economy.

### Banking stability
- Recent problem: Events have shaken confidence and prompted deposit withdrawals.
- Policy actions:
  - The central bank will continue to provide liquidity to solvent banks.
  - Measures to ensure banks are well capitalized include strengthening regulatory and supervisory oversight, facilitating resolution of nonperforming loans, and conducting diagnostics of balance sheets followed by recapitalization as needed.

### Fiscal policy
- Fiscal baseline risk: Without measures, the combined deficit of the government and energy utility would have reached an impossible-to-finance 12% of GDP.
- Policy imperatives:
  - A substantial fiscal effort is required to restore confidence in public finances.
  - Given the weak economy and political turmoil’s effect on revenue, the planned effort will still imply a higher combined deficit in 2014 than last year.
  - The deficit is expected to decline only gradually thereafter.

### Energy policy
- Problem statement: The government’s precarious finances make its capacity to supply energy at very low prices untenable.
- Price changes:
  - Heating and gas price increases of 40%-55% in 2014.
  - Further increases of 20-40% in each of the next three years.
- Distributional and fiscal effects:
  - Protections are included for the most vulnerable 25-30% of the population.
  - Household expenditures on heating and gas rise from 3-7% of household budgets to 5-11%.
  - The measures reduce the deficit of the energy utility by only 1% of GDP by 2016.
  - Cost recovery begins only in 2018.

### Transparency and business environment
- Diagnostic and reform commitments:
  - Actions and diagnostics cover the anti-money laundering framework, procurement law, anti-corruption actions, the recovery of stolen assets, and tax administration.
- Purpose:
  - Address lack of transparency that has allowed distortions and rigidities to persist.
  - Improve the business environment to support medium- and long-term growth.

### Risks, implementation, and outlook
- Risk environment:
  - Multiple risks from outside (e.g., the conflict with Russia) and inside (e.g., reform efforts yielding to entrenched interests).
- Political economy:
  - Success depends on political unity and determination to implement the program.
  - The current government and leading candidates in upcoming elections have indicated support for key program objectives and policies.
- Early assessment:
  - Major elements of the program have been implemented up front, which is described as a promising start in a still difficult and complex situation.

*IMF blog post: "Stabilizing Ukraine" by Reza Moghadam, April 30, 2014.*

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## Content in this bundle

- **Стабилизация в Украине; Реза Могадам; Блог iMFdirect; 30 апреля 2014 года**
  - [Стабилизация в Украине; Реза Могадам; Блог iMFdirect; 30 апреля 2014 года (Markdown version)](/external/russian/np/blog/2014/043014r.pdf.md){rel="alternate" type="text/markdown"}
  - [Стабилизация в Украине; Реза Могадам; Блог iMFdirect; 30 апреля 2014 года (PDF)](/external/russian/np/blog/2014/043014r.pdf){rel="external" type="application/pdf"}

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## References

- [https://www.imf.org/wp-content/uploads/2014/04/figure-one1.jpg](https://www.imf.org/wp-content/uploads/2014/04/figure-one1.jpg)
- [https://www.imf.org/wp-content/uploads/2014/04/figure-two.jpg](https://www.imf.org/wp-content/uploads/2014/04/figure-two.jpg)
- [https://www.imf.org/wp-content/uploads/2014/04/figure-three.jpg](https://www.imf.org/wp-content/uploads/2014/04/figure-three.jpg)
- [https://www.imf.org/wp-content/uploads/2014/04/figure-four.jpg](https://www.imf.org/wp-content/uploads/2014/04/figure-four.jpg)
- [https://www.imf.org/wp-content/uploads/2014/04/figure-five.jpg](https://www.imf.org/wp-content/uploads/2014/04/figure-five.jpg)

_Source: https://www.imf.org/en/blogs/articles/2014/04/30/stabilizing-ukraine_