EBRD activities in Ukraine - FiFo Ost

Economic summary
The year 2000 was Ukraine's first full year of economic growth since the onset of transition.
GDP growth was much higher than expected. Inflation was also considerably higher, but is
expected to come down in 2001. Strong export growth ensured an increase in the trade and
current account surpluses. FDI was still at a low level, but the target for privatisation
revenues was more than 80 per cent met. The exchange rate held firm and even appreciated
somewhat towards the end of the year. The budget for 2000 provided for a deficit of just
1.8 per cent of GDP and the out-turn was estimated at a deficit of 0.5 per cent of GDP.
A balanced budget for 2001 (including privatisation revenues) was approved in December,
the first time in recent years that a budget has been approved on time. The successful
rescheduling of most commercial debts removed the earlier prospect of default. The
prospects for 2001 depend on the successful implementation of structural reforms.
GDP growth
GDP growth was estimated at 6.0 per cent in 2000, much higher than expected. The recovery
reflects the strong response of industry to the earlier decline in the exchange rate, but also the
government's determination to promote reform, as well as the emergence in the Verkhovna Rada of
a broad coalition more likely to support reform than before. The growth of the economy was driven
by light industry, the food and paper sectors and heavy industry. The year 2000 was the first year
of positive growth since the transition began. In 2001 a growth figure of 3.5 per cent is forecast,
reflecting a continuation of demand for exports and stronger domestic demand.
Inflation
Inflation has been higher than expected, at an estimated 28 per cent annual average, partly
because of the National Bank of Ukraine (NBU)'s policy of buying foreign exchange to meet external
debt commitments, higher oil prices and increases in utility tariffs. Inflation is forecast to come
down to about 16.0 per cent in 2001, which would still be higher than the 13.6 per cent projected
by the 2001 budget.
Current account and trade balance
Exports have grown substantially. Ukraine's key trading partners – Russia, the EU and the US –
recorded economic growth that contributed to the success of the local economy. Strong export
growth ensured an increase of the trade balance surplus to an estimated US$ 779 million and of
the current account surplus to some US$ 1.48 billion or 5.2 per cent of GDP. In 2001, the trade
surplus is forecast to turn into a deficit (-US$ 300 million) and the current account surplus is
expected to narrow (to US$ 510 million) as domestic demand and import growth pick up.
Foreign Direct Investment
Cumulative FDI per capita stood at US$ 78 at the end of 2000. Net FDI inflows in 2000 stood at an
estimated US$ 594 million, about 19 per cent more than in 1999, but less than in 1998. The
figure is very low for a country the size of Ukraine and is expected to increase only slightly in 2001,
reflecting the persistently difficult investment climate. While FDI was low, the State Property Fund
has proceeded with privatisations of enterprises via tenders and auctions and raised UAH 2.1
billion (US$ 386 million) in revenues for the budget in 2000, some 84 per cent of the UAH 2.5
billion (US$ 460 million) targeted. The sale of the Mikolayiv bauxite plant alone brought over UAH 1
Poland
Belarus
Moldova
Romania
10
5
0
-5
-10
-15
-20
Ukraine
GDP
% change
Russian
Federation
-25
’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01
est. proj.
400
300
200
100
1500
1000
500
-500
-1000
Consumer prices
Annual average, % change
0
’95 ’96 ’97 ’98 ’99 ’00 ’01
est. proj.
0
Current account
US$ millions
-1500
’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01
est. proj.
800
600
400
200
Total FDI
US$ millions, cash receipts, net
0
’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01
est.
proj.
Source: EBRD, March 2001
Ukraine Investment Profile 5