Finland Times

 

Ukraine is on the brink of economic disaster, Prime Minister Arseny Yatsenyuk has recently warned the parliament.

     

Indeed, about 70 billion U.S. dollars have been transferred from the Ukrainian financial system to overseas accounts during the past three years, and foreign currency and gold reserves have fallen to 15 billion dollars from 37 billion dollars, while national debt has soared to 75 billion dollars.

   

Moreover, the three-month-old unrest and the current tensions in Ukraine's autonomous republic of Crimea has added fuel to the fire, leading to stagnation of some national investment programs and wage halts in many government projects this month.

     

To address the economic problems, Yatsenyuk has said the new government must take unpopular measures, such as cutting social expenditure and lifting taxes.

     

Against the backdrop of a serious shortage of funds, the government decided recently to cut back on 42 national investment projects and suspend another 82 supported by the government, and begun cuts to all ministries, which could lead to mass layoffs.

     

On the other hand, Ukraine has appealed to the West for more international assistance after Russia warned it could suspend huge loans promised to the authorities led by deposed President Viktor Yanukovych  and lift the natural gas price.

     

The West, however, will not let go the chance to draw Ukraine from Moscow's orbit. The United States has promised to provide 1 billion U.S. dollars in loan guarantees through the International Monetary Fund to help insulate vulnerable Ukrainians from the effects of reduced energy subsidies.

     

The European Union has also agreed a package of support measures worth 11 billion euros (15 billion dollars) in assistance to Ukraine. And the European Bank for Reconstruction and Development (EBRD) is ready to provide 5 billion euros (6.9 billion dollars) over the next six years to support structural and macroeconomic reforms.

     

However, analysts predict it will not be easy for Ukraine to get that assistance as support from the West always comes with conditions and is allocated in batches. If a problem occurs in execution, the loans can be terminated at any time.

     

Some media disclosed those conditions include not only political and economic reforms, but also Ukraine's internal subsidy policy.

     

Some experts say it is inevitable Ukraine will suffer an economic crisis, as there is a risk of sovereign debt default and a bank run, plus weak demand from overseas markets.

     

The estimated revenue for the first two months of 2014 dropped 4.2 percent to 52.2 billion hryvnia (about 54 billion dollars). For the past month, the local currency has been devaluing, by 20 percent days ago. Recent news of the West's support shored up the exchange rate.

     

Others have predicted the economic crisis will peak in March, and last about a year.