View all newsletters
Sign up to our newsletters

Support 110 years of independent journalism.

  1. Business
  2. Economics
7 February 2014

While Ukraine’s political situation remains uncertain, its economy teeters on the brink

If the political instability is not reined in soon enough, the currency will spiral out of control.

By Elizabeth Stephens

As the protests in Ukraine have escalated over the last three months, President Viktor Yanukovych has appeared progressively weaker. The timing of his sick leave last week could not have been more apt. The president has now offered a raft of substantive concessions in a bid to appease the protesters, not least the chance to lead a new cabinet, but in every instance he has been rebuffed. His subsequent decision to take leave was a signal that his options have rapidly reduced.

The government’s resignation was a serious blow to Yanukovych’s legitimacy. Without a cabinet underneath him he has become an isolated figure. The opposition recognises this and in the ensuing negotiations will maintain their stance of demanding early presidential and parliamentary elections.

As a western observer, one could be forgiven for thinking that there is an overwhelming majority of Ukrainians in favour of EU integration, with Vladmir Putin and Yanukovych the only figures standing in their way. But in reality the country is bitterly divided: Western Ukraine has very strong cultural and linguistic ties with Russia, and its inhabitants are deeply concerned about the impact of competition from the EU on its dilapidated, yet important industrial sector. Even the opposition is not unified, and it is difficult to reconcile the views held by the far-right nationalist party, Svoboda (which is at the vanguard of the current movement), with the EU’s supranational mantra. In any case, an election held in the current atmosphere would surely serve as a de facto referendum on EU integration, but it would undoubtedly be a close-run contest.

While Ukraine’s future continues to be contested, its economy teeters on the brink. So far Russian bond purchases and gas price concessions have provided a financial buffer, but if Yanukovych’s grip on power is eroded further and an opposition-led government becomes more likely, this support could be revised and potentially withdrawn. The EU would not be able to step in without major political reforms inside the country and in the meantime bond yields would rise amid sustained downward pressure on the currency.

Moody’s have already downgraded Ukraine’s sovereign rating to Caa2 with a negative outlook, citing growing strains on liquidity caused by the surging demand for dollars as the domestic population seek to convert their savings. On 31 January the hryvnia fell 2.5 per cent against the dollar – the largest single-day loss in almost five years. This is of significant concern, as with a USD15 billion loan from Russia, the government had spent several weeks using its financial reserves to prop up the country.

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com Our Thursday ideas newsletter, delving into philosophy, criticism, and intellectual history. The best way to sign up for The Salvo is via thesalvo.substack.com Stay up to date with NS events, subscription offers & updates. Weekly analysis of the shift to a new economy from the New Statesman's Spotlight on Policy team. The best way to sign up for The Green Transition is via spotlightonpolicy.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU

As the central bank has scaled back its commitment to maintaining a dollar-peg, this downward pressure is manageable in the short-term. Within the context of low inflation and slow export growth, it could even provide a boost. The danger, however, is that if the political instability is not reined in soon enough, the currency will spiral out of control, placing increased pressure on the corporate and financial sectors so as to impinge on their ability to service foreign debt.

The insurance market is acutely aware of this risk, and accordingly, capacity for credit cover on Ukrainian counterparties is exceedingly tight. It is set to remain so for the rest of Q1 and beyond.

Content from our partners
Development finance reform: the key to climate action
Individually rare, collectively common – how do we transform the lives of people with rare diseases?
Future proofing the NHS

Select and enter your email address Your weekly guide to the best writing on ideas, politics, books and culture every Saturday. The best way to sign up for The Saturday Read is via saturdayread.substack.com The New Statesman's quick and essential guide to the news and politics of the day. The best way to sign up for Morning Call is via morningcall.substack.com Our Thursday ideas newsletter, delving into philosophy, criticism, and intellectual history. The best way to sign up for The Salvo is via thesalvo.substack.com Stay up to date with NS events, subscription offers & updates. Weekly analysis of the shift to a new economy from the New Statesman's Spotlight on Policy team. The best way to sign up for The Green Transition is via spotlightonpolicy.substack.com
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
Visit our privacy Policy for more information about our services, how New Statesman Media Group may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
THANK YOU