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Executive Summary _______________________
Ukraine's economy finished year 2019 in a good shape overall: GDP real growth is expected at 3.7% year-over-year (y/y); inflation slowed to 4.1% y/y;
public debt decreased to 52% GDP, and fiscal deficit was at 2% GDP
Farmland market bill and the bill on certain aspects of the banking system functioning: consideration by Parliament delayed
The Government allowed for the privatisation of more than 530 state entities
The National Bank of Ukraine and other key stakeholders endorsed the financial sector strategy till 2025
President of Ukraine Zelenskyy expects Prime Minister Honcharuk and his team to deal with five priorities by 4 February
President Volodymyr Zelenskyy declared receiving 4.9million UAH (est.
200,000 euro) in royalties from his former employer Kvartal 95 in 2019
The European Commission published the latest report on protection and enforcement of Intellectual Property Rights (IPR) in third countries
Ukrainian grain exports up by 32.1% y/y for 2019/2020 marketing year
The Government approved plan of Ukrzaliznytsia's demerger
Macroeconomic developments ____
1. Ukraine's economy finished year 2019 in a good shape overall, as real GDP growth peaked at 4.6% year-over-year (y/y) in the second quarter 2019, slowed to 4.1% y/y in the third quarter and is expected at 3.5% for the whole year 2019 after 3.3% in 2018. Growth in 2019 was driven by investment activity and private consumption. The unemployment rate is expected to be further down at 8.6% for the whole 2019 from 8.8% in 2018. Consumer price inflation slowed down to 4.1%
y/y in 2019 from 9.8% in 2018 and thus almost reached the lower end of the central bank’s target range of 5%±1.0 percentage points (the National Bank of Ukraine projected 6.3% inflation at end-2019). The NBU continued to relax monetary policy and cut the key rate to 13.5% per annum during 2019 from 18% in 2018). The national currency hryvnia strengthened by 17% y/y to 23.8 UAH/USD by end-2019 and the national foreign exchange reserves amounted to $25.3 billion on 1 January 2020 (up from $20.8bn at end 2018), an equivalent of 3.9 months of imports. The consolidation of public finances continued. The fiscal deficit was reported at 2% GDP in 2019, which is the same rate as in 2018. The public debt (direct and guaranteed) decreased to 52% of GDP at the end of 2019 from 62% of GDP at end-2018, reflecting strong nominal GDP growth and appreciation of the hryvnia versus the US dollar. The current account deficit is expected to be at about 2.8% GDP (-$4.3bn) after 3.3%
GDP (-$4.4) in 2018. Imports, spurred by strong investment and consumer demand, are estimated to have increased by 8% y/y to $76.2bn while exports increased by 7.7% to $63.7bn. The resulting trade deficit was counterbalanced, as in 2018, by the
Exchange rate: 24.25 UAH/$
(20 January)
NBU refinancing rate: 13.5%
Nominal wages: UAH 10 340 in January - November 2019 (equivalent to
EUR 387)
Suggested reading:
EC report on protection of IPRs in third countries
Events to watch:
21-24 January – the World Economic Forum, Ukraine House, Davos, Switzerland
Contact:
Delegation of the EU to Ukraine Trade and Economic section
Please refer any questions to Delegation-ukraine-trade@eeas.europa.eu
Kyiv, 20 January 2020
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inflow of remittances from Ukrainians working abroad. Looking ahead, economic growth is expected to be slightly higher from 3.3% in 2018 to 3.5% in 2019 and around 3.7% in 2020. Domestic demand is expected to remain the key growth driver in 2020, giving a boost to consumer and investment-oriented sectors. The NBU expects 2020 inflation to be within the medium-term inflation target range of 5%
+/- 1 pp and may cut the key rate to 8% in 2020. A key economic policy challenge for 2020 is to ensure the implementation of the declared reforms agenda, on which the macroeconomic outlook is built. – NBU, Government forecast, Ministry of Finance
Policy developments
2. On the legislative front, the Parliament decided to delay the consideration of two important economic bills till February. One is the land reform (#2178-10), which is pending second reading. The other is the government bill on certain aspects of the banking system functioning #2571 (aimed to prevent efforts of former owners to reverse nationalisation of banks, specifically the Privatbank). According to Ukrainian media, there were 285 new court cases initiated by former owners of Privatbank in December 2019-January 2020. Meanwhile, the Parliament started debating at the Committee level the new Labour Code of Ukraine prepared by the government. The draft law on the Bureau of Financial Investigations (1208-2) that would replace the tax police with a new analytical investigation agency was on the Parliament’s agenda last week but on 17 January 2020, the Parliament rejected the draft law. Comment:
the last voting day of the current session of the Parliament was 17 January. The dates for the second session have not been fully decided as of present moment. It is only known that the first plenary day will be 4 February. In our understanding, both the land reform and the "Privatbank" bill are prior actions for the new programme with the IMF. Earliest adoption of the Privatbank bill is also a much-needed element in the context of the ongoing court cases (of which one is pending consideration on 23 January and the other on 31 January).. The Labour market reform is one of the priorities of the government as the present labour code dates from 1971. As concerns the Draft Law on the Bureau of Financial Investigations, this development represents a major drawback for the reform of investigating serious economic and financial crimes. The long-outstanding reform of the tax police saw momentum in the summer of 2019 after the presidential and parliamentary elections, with the new draft legislation being developed by the current Tax and Customs committee.
3. The Government allowed for the privatisation of more than 530 state entities.
The respective decision was approved on 27 December during the Cabinet of Ministers meeting. According to Prime Minister Honcharuk, the book value of the abovementioned enterprises constitutes more than 12 bln UAH. The privatisation will be conducted using the platform for transparent auctions "ProZorro. Sale" and will begin in 2020. Previously, Cabinet of Ministers approved 339 state enterprises to be prepared for privatisation. - Hromadske
Consumer Price Index, % change y/y
Consolidated Budget Balance, % GDP
Current Account, % GDP
Public Debt, % GDP
Official FX Reserves, bn USD
Sources: Ukrainian State Statistics Service, National Bank of Ukraine, IMF
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019f 2020f 2021f 2022f 2023f 2024f
-15.1%
0.2% 0.0%
-6.6%
-9.8%
2.4% 2.5% 3.3% 3.0% 3.0% 3.1% 3.2% 3.3% 3.3%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019f 2020f 2021f 2022f 2023f 2024f 15.9%
9.4%
8.0%
0.6%
-0.3%
12.1%
48.7%
13.9% 14.4%
10.9%
8.7%
5.9% 5.3% 5.0% 5.0% 5.0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019f 2020f 2021f 2022f 2023f
-2.0%
-3.1%
-6.3%
-5.8%
-2.8%
-4.3%
-4.8% -4.5%
-1.2%
-2.2% -2.2% -2.2% -2.3% -2.3% -2.2% -2.0% -2.0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019f 2020f 2021f 2022f 2023f 2024f
-1.5%
-2.2%
-6.3%
-8.1%
-9.2%
-3.9%
1.7%
-1.5%
-2.2%
-3.4%
-2.8%
-3.5% -3.7% -3.7% -3.6% -3.3%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019f 2020f 2021f 2022f 2023f 2024f 35.4%
40.6%
36.9% 37.5% 40.5%
70.3%
79.5% 81.2%
71.6%
60.2%
57.0%
54.3% 51.8% 49.3%
46.6% 44.7%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019f 2020f 2021f 2022f 2023f 26.51
34.58 31.79
24.55 20.42
7.53 13.30
15.54 18.81 20.8
19.5 20.9 20.8 22.9 23.5
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4. The National Bank of Ukraine (NBU), the National Securities and Stock Market Commission (NSSMC), the National Commission for Regulation of Financial Services Markets (NCFS), the Deposit Guarantee Fund (DGF), and the Ministry of Finance of Ukraine (hereinafter – the regulators) have approved the Strategy of Ukrainian Financial Sector Development until 2025. The goal of the Strategy is to ensure that the reform and development of Ukraine’s financial sector moves forward in line with international best practices and that the actions envisaged by the EU-Ukraine Association Agreement and Ukraine’s other international commitments are implemented. The Strategy was presented on 16 January 2020 with the assistance of the USAID Financial Sector Transformation Project. The document was signed by NBU Governor Yakiv Smolii, Minister of Finance Oksana Markarova, Head of the National Securities and Stock Market Commission Tymur Khromaiev, Managing Director of the Deposit Guarantee Fund Svitlana Rekrut, and Member of the National Commission for Regulation of Financial Services Markets Denys Yastreb. The Strategy is at this link.
5. By 4 February President of Ukraine Zelenskyy expects Prime Minister Honcharuk (PM) and his team to deal with five priorities, which in fact are conditions for further activity of the government. President set these tasks after PM Honcharuk submitted his resignation request as a response to the leak of a discussion that PM held with his economic team at end December 2019. In particular, President asked (1) to ensure that remuneration for government officials is fair. The PM is to prepare a new concept of remuneration of all staff across ministries and state enterprises; (2) to find a solution with regard to bonuses due to Naftogas staff for winning the $2.9bn Stockholm arbitration ruling against Gazprom; (3) to let go ministers who create "weak chains" due to inadequate professionalism; (4) to review and optimise portfolios of some Ministries, specifically mentioning the Ministry of Economy, Trade and Agriculture, Ministry of Culture and Ministry of Veterans; (5) improve communication and cooperation with the Parliament.
Comment: the task to review government salaries responds to the recent publication of income declarations by top officials whose December bonuses, in some cases, represent at least a double of their normal salaries. In practice, in case salaries get cleaned from topups and bonuses, some ministers may consider leaving their posts. As to bonuses to NAK Naftogaz staff, apparently the President seeks a compromise with the management team of the company and wants their contracts to be reviewed. As to other three priorities, we see the message from the President to the government to ensure that the declared reform agenda goes on without delays and in accordance with the election promises. The deadline of 4 February is linked to the date when the government has to present an interim activity report to the Parliament, which is 14 February. To be noted that PM Honcharuk's move to present his resignation is rather aimed to obtain confirmation from the President that, despite the recent story around the recordings, the President still trusts the PM and the entire Government team.
Sectoral and trade developments
6. President Volodymyr Zelenskyy declared receiving 4.9million UAH (est. 200,000 EURO) as royalty payment from his former employer Kvartal 95 in 2019, thus giving a benchmark to many Ukrainian artists with regard to the IP rights valuation.
7. The European Commission published the latest report on protection and enforcement of Intellectual Property Rights (IPR) in third countries. While developments have taken place since the publication of the previous report, concerns persist and a number of areas for improvement and action remain to be addressed. Intellectual property rights infringements worldwide cost European firms billions of euro in lost revenue and put thousands of jobs at risk. The report identifies three groups of countries on which the EU will focus its action. The geographical and thematic priorities for the EU action to protect intellectual property rights are based on the level of economic harm to EU companies. The report will help to further focus and target efforts. The updated list of priority countries in the report remains split in three categories reflecting the scale and persistence of problems: 1) China; 2) India, Indonesia, Russia, Turkey, Ukraine;
3) Argentina, Brazil, Ecuador, Malaysia, Nigeria, Saudi Arabia and Thailand. – European Commission
8. Ukrainian grain exports up by 32.1% y/y for 2019/2020 marketing year. According to the Ministry of Economic Development, Trade and Agriculture (META), as of 10 January, Ukrainian grain exports increased by 31.1% y/y (+7.8 mln
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tonnes) reaching 32 mln tonnes for the period starting from 1 July 2019. In particular, the exported grains include wheat – 15.1 mln tonnes, barley – 3.8 mln tonnes and corn – 12.8 mln tonnes. Moreover, the increase of grains floor increased by 53% reaching 0.2 mln tonnes.
9. The Government approved plan of Ukrzaliznytsia's demerger. According to the plan, the major and only Ukrainian railway company will be divided into three parts and partly privatised. The Head of the company Yevhen Kravtsov stated the plan previewed the creation of passenger, cargo and infrastructural verticals of the company, the order of the interaction between the verticals and of maintenance servicing, as well as centralisation of the corporate services. The passenger transport is expected to be serviced via the system of orders, which should be paid for in advance by local councils. – Hromadske
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