14th UKRAINIAN-GERMAN ECONOMIC SYMPOSIUM. UKRAINE AND THE WORLD ECONOMY: RISK ASSESSMENT AND POLICY RECOMMENDATIONS

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Outline

External stability is of crucial importance for the economic development of any country and should be a major goal of economic policy. At present, Ukraine enjoys a high degree of external stability, combining a current account surplus, increasing international reserves and a stable currency. However, this situation does by no means imply that stability will also prevail in the future. Thus, despite the current stability, Ukraine needs a consistent strategy for ensuring external stability in the future. Such a strategy was proposed by the experts of the Institute for Economic Research and Policy Consulting (IER) and the German Advisory Group on Economic Reforms (GAG) in the so-called Yellow Book “Ukraine and the World Economy: Risk Assessment and Policy Recommendations”.

The first part of strategy proposes measures to prevent negative shocks in the balance of payments. Here the following positions are considered: metallurgical and agricultural exports, energy imports, foreign direct investment (FDI), and changes in holdings of foreign cash by private households. The second part of the strategy includes measures aimed at improvement of the ability of the NBU to prevent a sudden devaluation of the hryvnia. The third part of the strategy deals with reducing the negative effects of a sudden devaluation, namely, a banking and fiscal crisis provoked by a widespread financial dollarisation.

Though the participants of this symposium expressed sometimes differing views on the nature of external risks and the probability of a sudden devaluation, all of them agreed that without large-scale structural reforms and strengthening of the NBU’s role one could hardly expect external stability of Ukraine’s economy to be ensured in the medium and long run. As far as sector-specific problems are concerned Ukraine’s metallurgical sector and gas transportation system need to be restructured dramatically both in terms of technical efficiency and regulatory environment. At the same time further analysis in the field of public finance and monetary policies is of paramount importance for making the broader economic environment more reform-friendly.

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