When the United States catches a cold, Ukraine gets the flu.
But what happens when Ukraine does virtually everything in its power to lower its immunity as America gets the flu? Unfortunately, we will get the answer to that question very soon — and it may be ugly.
On March 9, both stocks and oil prices crashed due to fears over the spread of the novel coronavirus and a conflict between Russia and Saudi Arabia over cutting oil production to support prices. The crash — deemed “Black Monday” in the press — is raising fears of a recession in the United States and possibly globally.
On March 12 in Ukraine, government-imposed quarantine measures came into effect. The country closed educational institutions and canceled mass events until April — a move that may hinder the spread of the virus, but will deliver a blow to the Ukrainian economy.
That would be bad enough. But the anti-coronavirus measures come just a week after the most tumultuous Ukrainian political news this year.
On March 4, the Ukrainian parliament, dominated by President Volodymyr Zelensky’s Servant of the People party, voted to disperse the government and appoint a new prime minister and Cabinet. The new government featured several figures of questionable repute.
The next day, parliament voted to fire Ruslan Riaboshapka, prosecutor general of Ukraine and an individual who enjoys respect from civil society and Ukraine’s Western partners.
Even without the specter of coronavirus, the Cabinet reshuffle would have been bad news. The previous government was just six months old. The abrupt shakeup, carried out seemingly haphazardly and poorly explained to the public, spooked investors in Ukrainian government bonds and made the country look unstable and unpredictable.
In 2020, Ukraine must repay $17 billion in debt. Meanwhile, its negotiations with the International Monetary Fund (IMF) have come to an impasse after the country failed to make progress on issues like banking and land reform.
Numerous observers now predict that Ukraine will not receive another tranche of IMF aid. What happens then?
As Timothy Ash, an emerging markets analyst, wrote in the Kyiv Post, Zelensky had a lot going for him: political capital, Western support, strong macroeconomic conditions and falling borrowing costs. He had a great shot to enact reform.
Instead, he decided to squander it by firing a Cabinet with reformers and replacing it with what seems like a weaker team.
Turns out, the time couldn’t have been worse for that move.
On March 11, Ukraine’s new prime minister, Denys Shmygal, said that the country is ready for a global economic crisis caused by the coronavirus.
“We have more liquidity in the banks than ever before, we have high gold and foreign currency reserves, we have reserves for the planned budget, we have a rather positive dialogue with the IMF,” Shmygal said.
Given the bad news of the last two weeks, let’s hope he’s right. If not, Ukraine will be in deep trouble.
