The last person to leave Ukraine please turn off the lights!

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How bad is Ukraine’s economy? Well hmm…Ukraine’s new government has said it needs $35bn (£21bn) to pay its bills over the next two years.

Ukraine has been marked by negative historical fluctuations with the IMF: it failed to keep to the terms of previous assistance packages in 2008 and 2010.

Consider this now Ukraine’s economy is smaller than it was in 1992, shortly after the dissolution of the Soviet Empire.
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At the time, Ukraine and Poland had similar-sized economies but Poland’s economy is now twice as large as that of Ukraine’s.

The IMF estimates that the Ukrainian economy shrank 0.3% last year after barely growing in 2012.

However, because many industries are so energy-inefficient, they are heavily dependent on imports of Russian gas which have been heavily subsidised.

Farming is also another important key  industry, Ukraine has more arable farm land than any other European country and is a colossal producer of grain and sunflower oil.

A 2012 study by two Ukrainian academics confirmed that the shadow economy is equivalent to 44% of Ukraine’s economic output.

Now if you compare Ukraine with its Russian neighbour the results are rather startling. Russia is a large, energy-rich nation that is deeply interconnected with the global economy, one reason why the Europe and America have been reluctant to impose sanctions on Russia.

That makes European sanctions against the Kremlin a double-edged sword. The E.U. could cut Russia off from European financial markets or prohibit European firms from doing business in Russia, but Putin could respond by cutting off natural gas and oil exports to the European Union. This would undoubtedly ensure mutually assured destruction for all countries concerned.

The lack of energy would likely send the E.U. into a recession. As for Russia, well I guess it would look to India and China as its primary export markets.

 



Categories: Business, Ukraine Crisis

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