Ever since the financial crisis of 2008-9, Ukrainians have worried about a second wave of crisis. I have long considered it unnecessary and unlikely. Yet the current government has not alleviated the original causes of the crisis but added reasons for a new financial crisis. Therefore a new financial crisis is increasingly likely.
The first cause of the crisis was that the hryvnia exchange rate was pegged to the US dollar. Ukraine remains in such a situation, while economists overwhelmingly think that a relatively large country that is highly dependent on exports of a few commodities ought to have a floating exchange rate. Once again, the dollar peg undermines the credibility of the Ukrainian exchange rate.
Another concern in 2008 was Ukraine’s exposure to global financial markets, when the nation’s gross external debt amounted to $102 billion. Today it has risen to $130 billion, or from 57 percent of GDP to 79 percent of GDP. This includes both public and private debt. Ukraine is therefore much more sensitive to a sudden stop of international liquidity as occurred in September 2008.