Transcript Recent Financial Crises

Ukraine:
Current Economic Situation
and Future Prospects
Oleg Ustenko
Executive Director, The Bleyzer Foundation
October 2012
Ukraine: Economic Growth
Real GDP Growth by Demand,
Contribution to Growth, % points
Sources: State Statistics Committee, The Bleyzer
Foundation
• In 2010 and 2011, GDP grew by
4.1% and 5.2%, respectively.
• In 1H 2012, GDP rate of growth
declined to 2.6% yoy, due to
shaking international economy.
• Since June, economic growth has
slowed affected by further
weakening external environment
and domestic factors.
• For the entire 2012, real GDP
growth forecast is 1.5% yoy.
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Drivers of GDP Growth: High Consumption
Real Wage and Retail Sales
Growth, % yoy
* Excluding private entrepreneurs’ and informal
markets. Source: SSC, TBF
• In 1H 2012, retail sales turnover was
up by 16% yoy.
• This growth in consumption was
stimulated by steady increases in real
wages (+16% yoy in 1H 2012).
• Strong real wage growth was the
result of:
• higher budget expenditures on social
security and wages (+28% yoy vs.
+13% yoy increase in total budget
spending in 1H 2012);
• record low inflation for the period.
• The Euro-2012 football championship supported the construction
sector and contributed to cosumption growth.
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Drivers of GDP Growth: Strong Agriculture
Grain Production in Ukraine,
million tons
• For 2012, grain output is forecast at about 44 million tons.
• Though lower than the 2011 record output, it will be higher than
the historical average.
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Progress in Easing Inflationary Pressures
Select Monetary Indicators, % yoy
Contributions to CPI Growth,
percentage points
Source: State Statistics Committee, NBU, TBF
• In Jan-Sep 2012, inflation was at a decade low 0.8% yoy due to:
•
•
•
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a generous 2011 harvest of grains and vegetables;
easing of world energy prices;
lower rate of growth of money supply;
government reluctance to raise gas and utility tariffs ahead of elections.
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Progress in Addressing Sort-Term Fiscal Needs
• State budget revenues rose by nominal 17%
yoy in 1H 2012, due to advance tax and other
payments. But since then they notably
decelerated (9% yoy in Jan-Aug).
• Expenditures grew by 14.5% yoy over JanAug. Moderate growth was mainly due to a
delay in some spending programs.
• As a result, the state budget deficit was
almost three times higher in Jan-Aug than in
2011.
• Overall public sector deficit in 2012 is
forecast at 4% of GDP as we expect budget
* State and local budget deficits
spending adjustment after elections.
** Pension Fund Loans from Single Treasury Account
• But Ukraine has secured sufficient resources to cover its short-term needs
thanks to $2.6 bn Eurobonds issued in July and September, a $2 billion VTB
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loan rollover, $0.7 bn privatization revenues, and domestic borrowings.
Public Sector Fiscal Deficit, % of GDP
Progress in Financing the Balance of Payments
• In 8m 2012 export growth
slowed down to 2.9% yoy, as a
result of:
• weaker foreign demand;
• lower world commodity prices;
• trade restrictions by Russian on
dairy, cheese, meat, and other
products.
• Imports also slowed down, due to
lower energy imports but grew
much faster than exports.
• In 2012, the current account deficit is forecast at about 6% of GDP (compared
to 5.5% of GDP in 2011).
• So far, this deficit is financed by a financial account surplus (despite high
external debt service), due to capital inflows ( mainly trade credit, ST capital).7
Current Challenges: Fiscal Sustainability
Concerns
• Robust revenue growth in 1H 2012 was partly achieved thanks to one-off
transfer of NBU profits and stronger tax pressure on business.
• Due to lower economic growth, the original revenue targets contained in
the budget law are unlikely to materialize.
• Expenditures are also likely to be higher than originally planned, since
generous social payment increases were not covered by sufficient
compensatory measures.
• Furthermore, due to delays in energy tariffs increases, Naftogaz deficit is
forecast to remain at about 2% of GDP.
• Public debt may also be strained as at the end of July, Parliament raised
the limit of state budget private credit guarantees by 4.6 times to about
4.6% of projected full-year GDP.
• Though Ukraine has secured sufficient financing for ST fiscal needs, after
the October elections, the government will need to take measures to be
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able to finance the deficit and sustain its public debt.
Current Challenges: Weak External
Environment
World Steel Prices, Export of Goods and
Industrial Production of Ukraine, % yoy
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Outlook for 2013
• Shortly after the October elections, macroeconomic pressures will
give Ukraine no choice but to resume co-operation with the IMF, most
likely in the form of a new stand-by agreement.
• To secure IMF financing likely conditions would include:
• Natural gas tariffs must be raised in stages (about 50% each stage)
• The 2013 budget law must be approved with significant reduction
in expenditures and a fiscal deficit of no more than 2.5% of GDP
• Foreign exchange controls will be eased and a more flexible
exchange rate regime must be allowed, resulting in a Hryvnia
depreciation
• Further measures to restore the health of the banking sector
• Other fiscal/energy reforms must be initiated.
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Outlook for 2013 (cont.)
• As a result of these measures:
• Consumer inflation will accelerate to about 8% yoy in 2013;
• The Hryvnia is likely to depreciate, but the process will be moderate and
under control of the central bank.
• The currency depreciation, the reform program as well as projected
global growth revival will support exports and, thus, economic growth in
2013, with GDP increasing by about 4% in 2013.
• Lower fiscal expenditures will weigh on domestic demand growth but its
impact should be partially offset by resuming bank lending.
• If the October’s elections are recognized as broadly meeting international
standards, there will be good chances that FTA between the EU and Ukraine
is ratified. In this case, real GDP may grow even faster.
• After elections, Ukraine will have about 1.5 years of relatively calm political
period, which increases the chances for implementation of painful but
necessary structural reforms.
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Key Macroeconomic Indicators
2007 2008 2009 2010 2011 2012f 2013f
Real GDP Growth, % yoy
7.9
2.3
-14.8
4.1
5.2
1.5
4.0
Fiscal Balance, % GDP*
-1.7
-2.0
-8.9
-7.0
-4.4
-4.0
-2.5
Consumer Inflation, %, eop
16.6
22.3
12.3
9.1
4.6
4.0
8.0
UAH/$ Exchange Rate, eop
5.1
7.7
8.0
8.0
8.0
8.4
8.8
Current Account, % GDP
-3.7
-7.0
-1.5
-1.9
-5.5
-6.0
-5.4
Gross Int. Reserves, $ bn
32.5
31.5
26.5
34.5
31.8
26.0
25.0
Foreign Gov't Debt, % GDP
8.7
9.2
20.5
23.8
21.0
19.0
18.0
Foreign Private Debt, % GDP
47.4
47.1
67.7
62.2
55.6
48.0
48.0
*
Includes implicit pension fund deficit (credits from unified Treasury account (state budget) to cover pension fund expenditures)
for 2007-2008 and Pension Fund and Naftogaz imbalances since 2009, excluding bank recapitalization and VAT bonds 12