The European Bank for Reconstruction and Development (EBRD) predicts that Ukraine’s 2019 real GDP growth will be 3.3% rather than 2.5% as was forecast in May.
The lender also expects GDP growth to reach 3.5% in 2020, the same rate as neighboring Poland, according to the EBRD’s November Regional Economic Prospects report released on Nov. 6. In May, the prediction for the coming year was less optimistic – only 3%.
“Ukraine’s economy remained resilient to political factors (in reference to the two elections in 2019) but the pace of growth will stay somewhat modest,” EBRD’s website says.
The country’s economy remained stable due to robust private consumption fueled by strong real income growth and booming construction, which the bank named as major factors in its revised prognosis.
Another boon was the inflow of foreign capital, which helped increase Ukraine’s official reserve assets to $21.4 billion as of Oct. 1, 3% higher than in the beginning of the year and enough to cover three and a half months of imports.
The bank also noted that Ukraine’s annual inflation rate slowed to 7.5% in September compared to 9.8% in 2018. However the rate remains above the central bank’s target of 5%.
Ukraine is not an outlier – the EBRD reported that economic growth across Eastern Europe, Central Asia and the Caucasus region exceeded expectations in the first half of 2019.
Meanwhile, Ukraine’s growth in the first half of the year still lags behind Moldova (3.8%), Georgia (4.5%) and Armenia (6%).
The EBRD stressed that a new funding package from the International Monetary Fund (IMF) is “crucially important for anchoring investors’ expectations and supporting macroeconomic stability.” The size of the potential IMF loan has been estimated between $5 billion and $10 billion. Negotiations are ongoing, according to Ukraine’s central bank.
An agreement is vital for Ukraine to make necessary payments on its external debt in 2020 and 2021.
However, the IMF may still turn its back on Ukraine if billionaire oligarch Ihor Kolomoisky succeeds in reclaiming PrivatBank, the country’s largest lender. Kolomoisky and his business partner Gennadiy Boholyubov owned PrivatBank before it was nationalized in 2016 after investigators discovered a $5.5 billion hole in its ledger.
Returning the bank to Kolomoisky is widely considered to be a red line for the IMF in its cooperation with Ukraine.
The EBRD’s total investments in the country have reached 14.22 billion euros across 440 projects.
On Oct. 31, the EBRD approved adding another 200 million euros for the development of renewable energy in Ukraine, which the bank has invested in over the last decade.
