Top concerns for Ukraine now are the developments in the Euro zone and the state of the global economy together with resolution of the political crisis in the country. Confidence in the government and the state institutions is low. Economic growth remained weak for the last two years. After five consequent quotes of economic slowdown started in the second half of 2012, Ukraine’s GDP posted growth of 3.7 percent y/y in 4Q2013 driven by good harvest and low statistical base. This brought FY GDP growth to 0.0 percent (after 0.2 percent in 2012). Performance of the key sectors remained week due to weak external conditions and delays in domestic policy adjustment.
Economic growth is expected to recover slightly in 2014, however the risks for this forecast are still substantial. On external side, the main risk is a protracted crisis in Europe, leading to lower demand for exports and more difficult access to global capital markets. Domestically, the main risk is a failure to implement macroeconomic rebalancing (preferably anchored in a program with the IMF). Delays in macroeconomic adjustment could mean that the forced adjustment will be much sharper. Ukraine’s access to financing is already limited by investor concerns over the sustainability of its macro framework, political situation and the poor investment climate.
To support the banking industry, World Bank is actively working with the Government and the National Bank of Ukraine and other financial regulators on strengthening the policy and regulatory role of the state in the financial sector, while consolidating state ownership of financial institutions.
Evidence shows Ukraine is facing a health crisis, and the country needs to make urgent and extensive measures to its health system to reverse the progressive deterioration of citizens’ health. Crude adult death rates in Ukraine are higher than its immediate neighbors, Moldova and Belarus, and among the highest not only in Europe, but also in the world.
The unemployment rate increased to 9.5 percent at the beginning of 2009 as a result of the global financial crisis, and today stands at 7.5 percent. While firms in the country face a shortage of skilled workers, many university graduates can’t find employment or end up in jobs that do not use their skills due to skills mismatch.
Literacy and school enrollment rates are high in Ukraine. However, larger budget allocations to education have not resulted in improvements in the quality of education. Ukraine’s priority should be to make better use of the resources allocated for the sector by significantly downsizing the school network to fit the smaller (current and projected) cohorts of students.
Ukraine has tremendous agricultural potential and could play a critical role in contributing to global food security. This potential has not been fully exploited due to depressed farm incomes and a lack of modernization within the sector. The establishment of a legal framework for secure land ownership, development of an efficient registration system, and ensuring free and transparent land markets are important elements of a policy framework that could facilitate agricultural development in Ukraine.
Ukraine’s road safety record remains one of the worst in Europe in terms of road accidents and fatalities. Substantial portions of the network need upgrading to European technical and safety standards. Improving the efficiency of the transport sector could play a role in raising economic competitiveness.
Ukraine is one of the most energy inefficient countries in the region and restructuring and upgrading its energy sector continues to be one of the key development challenges for the Government. The sector faces problems maintaining security, reliability and quality of supply due to delays in energy sector reform, poor financial condition of energy sector enterprises, lack of investments, and deferred maintenance in aging infrastructure. These factors threaten the sustainability of economic growth, degrade the environment and increase the cost of social services. Improving them is among Ukraine’s top strategic priorities.
The municipal and services sector in Ukraine suffers from decades of underinvestment and poor maintenance. The need to invest in water and wastewater utilities is growing dramatically and the existing low tariff levels are a major limitation to the sustainability of utilities. The need for rehabilitation is exacerbated by the overall high energy consumption in water production and wastewater treatment. Improving service delivery through rehabilitation of infrastructure and promotion of energy efficiency solutions offers the possibility of driving utilities towards financial sustainability while providing improved services.
Last Updated: Feb 17, 2014