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The Ukraine is in the middle of Europe’s most serious crisis for decades. The country’s former president, Viktor Yanukovych fled the country in November 2013 in the face of escalating street protests. A pro-EU acting government came to power, prompting the pro-Russian Crimean Peninsula to hold a one-sided referendum on declaring autonomy from the Ukraine and linking with Russia instead. Pro Russian forces have since taken over the Crimea and relations between Russia and the West have deteriorated markedly. Even without this drama, the Ukranian economy experienced a torrid time against a backdrop of political confusion and policy muddles. However, in its latest report (March 27, 2014) on Ukraine the IMF announced that it had reached agreement with the Ukrainian authorities on a two year Stand-by Arrangement that will see the Ukraine gaining access to some US$27 billion of funds over two years, with US$14-18 billion of this coming direct from the IMF. The stand-by arrangement, the report said, is in recognition of the fact that the Ukraine’s macroeconomic imbalances, including debts to Russia for gas, have become unsustainable. International reserves reached critically low levels and the budget deficit, combined with the deficit run up by the country’s state-owned gas company, Naftogas, threatened to exceed 10% of GDP in 2014. The budget deficit for 2013 was around 5.75%. Energy tariffs that cover only a small fraction of the economic cost of energy are generating substantial fiscal losses and need to be phased out, the IMF says. Ukraine’s real GDP growth for 2013 was put at 0.4%. Impediments to doing business in Ukraine continue to be severe, although prior to the crisis, the country had moved up 25 places in the World Bank’s Doing Business 2014 report, which ranks 112 out of 189 countries. The government needs to revamp the judicial system, repeal burdensome legislation, sort out corruption, and enforce clear and consistent rules in tax administration, advises the IMF, if it wants to see real progress in job creation.

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Further reading on Ukraine


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