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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2005
UKRAINIAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Politic and Economic Environment:
Among the Commonwealth of Independent
States (CIS), the Ukraine, with its abundant
industrial and agricultural resource base,
was generally considered the leading
candidate for rapid transition to a market
economy. The Ukrainian industrial complex,
centered in the mineral rich southeastern
region, provided a wide range of valuable
raw materials and finished products to the
other republics of the former U.S.S.R.
Likewise, the historic ability of Ukraine's rich
soil to supply large quantities of diverse
agricultural products within the region was
widely expected to be an engine of growth
and development in the market economy
transition.
Similar to other transitional CIS countries, an
informal economy has evolved in the
Ukraine, which is estimated to now generate
approximately 50% of total (but unreported)
gross domestic product. Privatization of large
enterprises has moved slowly, but the
amount of privatization proceeds in total has
been rising. In 2000, for example, sales of
state-owned enterprises generated proceeds
equivalent to about 1.3% of GDP, more than
double that amount received the previous
year.
Viktor Yushchenko was sworn in as president
after winning a rerun of the troubled 2004
election. He described the outcome as a
"great national victory" and promised to take
Ukraine along the road of European
integration.
ECONOMIC RATIOS
PAGE 140
Ukraine
Lower-middle-income group
Mr Yushchenko is an economist and banker
by training. He served as prime minister
under Leonid Kuchma between 1999 and
2001 when he was credited with steering
through successful economic reforms.
Mr Yushchenko is regarded as a pro-
Western liberal reformer. He promises to
build a country in which there is freedom,
democracy and rule of law. He also pledges
that alleged corruption by the outgoing
authorities and several high-profile crimes
will be investigated.
Viktor Yushchenko's victory in the presidential
election in late 2004 has already begun to
translate into greater political openness and
faster economic reform. However, the 2006
parliamentary election, in-fighting within the
government, and the planned switch to a
more parliamentary political system will all be
significant distractions and will limit the
extent to which reforms can be speeded up. 1
Economic Performance:
In 2003, Ukraine's steel exports were
gobbled up by China, while capital
investment in Russia garnered a need for
Ukrainian machinery. This export boom
spurred investment and construction in
Ukraine, that when coupled with an
expansion in access to consumer credit,
drove real GDP growth of 9.3% in 2003, up
from 5.2% in 2002. The inflation rate (as
measured by the GDP deflator) increased to
9.1% in 2003 from inflation of only 2.9% in
2002 due to skyrocketing food prices related
to a poor harvest. The fiscal balance in 2003
rested at a small deficit of 0.2% of GDP
compared to a deficit of 0.4% of GDP in
2002–relatively small, but still reflecting
Key Information Contacts
Securities and Stock Market State Commission www.ssmsc.gov.ua
Ministry of Finance www.minfin.gov.ua
State Property Fund of Ukraine www.spfu.gov.ua
State Committee of Financial Monitoring www.sdfm.gov.ua
State Commission for Regulation of Financial Services Markets in Ukraine www.dfp.gov.ua
Domestic
savings
Trade
Indebtedness
Investment
GROWTH OF INVESTMENT AND GDP
(%)
30
20
10
0
-10
-20
-30
97
GDI GDP
inefficient tax administration. Prospects for
continued growth look good if the
government can continue to maintain
macroeconomic stability. Wage levels in the
Ukraine, though rising fast now, are still
about one half those in Russia and less than
one quarter of those typical of the countries
that entered the European Union in May
2004.
Exports grew 25% in 2003, resulting in a
current account surplus of 5.9% of GDP. In
the financial and capital account, foreign
direct investment (FDI) is flowing in, partly in
response to privatization efforts. In 2003 FDI
jumped to US$ 1.4 billion. Accordingly, the
Ukraine's overall balance of payments has
swung into surplus and the NBU has been
accumulating foreign currency reserves as a
result. The level of those reserves as of yearend
2003 was nearly US$ 6.7 billion, up
significantly from the severely depleted level
of the crisis year 1998. Real GDP growth is
expected to decelerate to 6.5% in 2005 and
to 6% in 2006. Year-end inflation is forecast
to slow to 8% by 2006. The currency has
strengthened recently, but will remain
broadly stable in nominal terms against the
US dollar in 2005-06. The current-account
surplus reached a record high in 2004, but
will decline in 2005-06 as export growth
diminishes. 2
1 BBC News Online,
http://news.bbc.co.uk/1/hi/world/europe/country_profiles/11
02303.stm, January 2005
2 Ukraine Country Report, Economic and Political Outlook,
The Economist, www.economist.com
98 99 00 01 02 03
* World Bank reports