GDP slumps 20.3 percent in first quarter, State budget deficit widens to Hr 7 billion, Rada amends foreclosure and hard currency lending, demand for natural gas falls by a third.

GDP slumps 20.3 percent in first quarter

The State Statistics Committee on June 30 finally released gross domestic product data for January-March, reporting the economy shrank by 20.3 percent year-on-year in real terms over the period. The SSC said first-quarter nominal GDP totaled Hr 183.2 billion ($23.8 billion), down 2.4 percent year-on-year in hryvnia terms and down 36.0 percent in dollars. Sector-by-sector breakdown shows value-added in construction narrowed by 54 percent in the first quarter, followed by processing industries (-37 percent), trade (-18 percent), extracting industries (-16 percent) and transportation (-14.4 percent). This is the first official report on Ukraine’s GDP dynamics for 2009 after the government canceled publication of monthly GDP statistics and shifted to quarterly data, which is more common internationally. However, the SSC, which had promised to release first-quarter GDP data by mid-May, delayed the publication by a month and a half, prompting accusations the government was trying to conceal the true scale of economic decline in Ukraine. Hardly coincidentally, the SCC’s report came out just as an IMF mission began work in Kyiv to decide on disbursing a $3.2 billion loan tranche to Ukraine. The IMF earlier demanded that the government accelerate publication of GDP statistics. Ukraine’s GDP rose by 2.1 percent in 2008 despite declining by 8.0 percent in the final quarter of last year. Historical data from the SSC suggest Ukraine’s economy fared worse only in 1994, when full-year GDP plummeted by 22.9 percent.


State budget deficit widens to Hr 7 billion

The State Treasury reported a state budget deficit of Hr 7.0 billion for the first five months of this year, a deterioration compared to a gap of Hr 2.7 billion in the first four months of the year. State budget revenues reached an estimated Hr 87.6 billion over the period, down 2 percent year-on-year. The Treasury did not release a breakdown of revenues but it is likely that state coffers suffered the most from weak collection of VAT on imports as well as from deteriorating collection of the corporate tax. Tax collection is expected to worsen further in the coming months against the backdrop of weak economic activity, though higher excise rates on alcohol, tobacco and diesel fuel will partly offset the expected drop in other taxes. In addition, the government can raise extra revenues for the budget from the sale of unused greenhouse gas emission rights under the Kyoto protocol. Ukraine’s first deal with Japan to sell 30 million of so called assigned amount units of greenhouse gas will bring a total of Hr 2.6 billion to the budget, with half of this amount already transferred and the other half expected in 2010. The government plans to sign two more emissions trading contracts this year for a total of 150 million units, which can raise up to Hr 17 billion for the budget.


Rada amends foreclosure, hard currency lending

Ukrainian parliament approved a bill that imposes a temporary moratorium on foreclosures under retail mortgage loan agreements and bans banks from disbursing new foreign currency loans to retail customers. The bill prohibits banks from appropriating collateralized residential real estate in 2009 and 2010 if a borrower’s payments to the bank under a corresponding mortgage agreement are two months or less overdue. It also obliges banks to restructure outstanding retail loans so that a particular household’s regular debt payments do not exceed 35 percent of its income. The new draft law makes it more likely President Victor Yushchenko will veto parliament’s earlier similar bill that completely banned property foreclosure. The news is positive for banks as the new bill, provided that the president signs it into law, will give banks more leeway to enforce mortgage agreements. With respect to foreign currency retail loans, the bill allows banks to disburse new loans only to individuals seeking education or medical treatment abroad and to private entrepreneurs who earn revenue in foreign currency.


Demand for gas falls by a third in May

The volume of natural gas pumped through Ukraine’s pipeline network fell by 31 percent year-on-year in May to 12 billion cubic meters (bcm) as industrial consumers slashed gas consumption by 52 percent to 1.2 bcm and gas transit to Europe decreased by 29 percent to 7.5 bcm. Gas demand in May was covered by 1.8 bcm of domestic extraction and 10.1 bcm of imports. In January-May, Ukrainian gas pipelines pumped 58.9 bcm of gas, down 38 percent year-on-year, as domestic industrial consumption slumped by 50 percent to 7.2 bcm and gas volumes exported to Europe decreased by 47 percent to 29.6 bcm.