Analysts say the long-running drive toward greater prosperity is strong enough to sustain the blow, providing the crisis does not last too long.
As Ukraine’s constitutional crisis drags into its third week, concerns are growing over how the political standoff will affect the country’s successful economic growth and state financing.
Prime Minister Viktor Yanukovych’s governing coalition has warned that the country’s economic performance will worsen if the government is sacked during this period of political uncertainty. But analysts say the long-running drive toward greater prosperity is strong enough to sustain the blow, providing the crisis does not last too long.
First Deputy Prime Minister and Finance Minister Mykola Azarov said on April 12 that it could take months to repair damage done to the strong economic upturn if the crisis isn’t resolved soon.
A week earlier, Economy Minister Anatoliy Kinakh warned about “the negative economic consequences” if pro-Western President Viktor Yushchenko and his Russian-leaning prime minister do not reach a compromise in “two weeks.”
Kinakh said that the political standoff could seriously damage Ukraine’s reputation, curbing inflows of foreign investment. The country badly needs private external financing, he said, and might already be frightened by the prospect of long-term instability.
“We planned to invest about Hr 150 billion ($30 billion) from the national budget, domestic and foreign investors’ funds, to radically propel the country’s economy to a higher level. Today’s conflict threatens these plans. It will throw back the government’s complex program for an economic breakthrough,” he added.
Since coming to power last August, the Yanukovych Cabinet has yet to present its government program for parliamentary approval.
President Viktor Yushchenko, who surprised many with his dissolution of parliament and call for early elections on April 2, has called for calm and insisted that there is no short-term risk of economic decline.
“The currency markets remain solvent. Trade is stable. The budget deficit is under control, and there is no risk of stock market destabilization,” Yushchenko announced on April 12.
Yushchenko slammed Azarov for fear-mongering.
“[Azarov’s] statement is a political pressure tactic on society: If you do not support what is happening in the country, that means you’ll have economic problems,” he said.
Ukraine last year posted strong GDP growth of 7 percent thanks to high demand for steel exports and rising domestic consumption. Inflation was kept under control and below 12 percent, and budget revenues steadily increased.
Vitaliy Vavryshchuk, an analyst at the Kyiv-based Center for Social and Economic Research CASE Ukraine, believes that the political crisis’ influence on the economy is largely a matter of time.
“If the crisis is resolved within weeks, it will have a minimal impact on the economy. But if the conflict lasts several months, then more serious damage can be expected,” he said.
Vavryshchuk added, however, that the conflict has already reached its “peak” and will end in a compromise decision within weeks.
The World Bank forecast 5.5 percent GDP growth this year and inflation of just under 11 percent. The bank expects a further worsening of the current account deficit to 3.9 percent of GDP, which it said will be comfortably financed by the inflow of FDI and private debt financing. The fiscal deficit is expected to remain at 3 percent of GDP.
