Ukraine's economy: problems and solutions

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:47

Ukraine's economy is going through quite difficult times today. There is a negative trend in almost all economic indicators.

The need for austerity in 2014

Due to political instability, according to experts' forecasts, Ukraine's economy in 2014 should be within the framework of austerity, as GDP growth is expected to be only 3% with inflation rising by more than 8%. At the same time, nominal GDP will be very low (slightly above 7%). This will not allow indexing social spending upwards. Thus, the government of the country is preparing the population for certain budgetary savings.

The economy of Ukraine, the forecast of its main indicators this year is an increase of only 3%. These figures are contained in the relevant government bill submitted to the Supreme Council. With such GDP growth rates (very low for modern economic conditions), the economy in the country will not even be able to reach the pre-crisis level. A similar situation will be observed in the next couple of years.

IMF tranches - a way out of the crisis?

Unfortunately, the modern economy of Ukraine focuses only on externalborrowing. So, negotiations are constantly underway with the IMF, according to the results of which the first tranche will go to the state in May of this year. However, considering the directions for which these credit funds will go, you can see that they will simply be “eaten up”, since we are only talking about replenishing the country's reserve fund, as well as paying salaries and covering social needs. Nothing is said about the investment of these financial resources in the development of the Ukrainian economy, the rise of such industries as metallurgy and engineering. But it is these industries that could bring considerable income to the state treasury in the near future.

Fiscal policy

In connection with the upcoming presidential elections in Ukraine (May 25, 2014), the current government pays a lot of attention to the taxation area. At meetings of the Supreme Council, the next amendments to the Tax Code and other normative acts regulating the tax system are considered. Such measures can be considered populist and ineffective, since the Ukrainian economy will not be able to compensate for the decrease in the level of budget revenues by reducing tax revenues by any other sources. In the context of the current crisis in many countries, it is the main burden that falls on the business sector. Yes, there is a possibility that a certain part of the business will go into the "shadow" or the transfer of assets abroad. But these will be few, and the main part will “tighten their belts” tighter and will continue to work until better times.

Basic loadfalls on the population

It is safe to say that in the pursuit of obtaining financial resources from the IMF by the government of Ukraine, the main burden is shifted to ordinary Ukrainians. So, since May 1, 2014, the price of gas for the population has already risen by one and a half times. The next step will be to reduce various social benefits. In other words, all IMF conditions are met.

Summing up what has been said, it is necessary to note the following: the Ukrainian economy is in a rather difficult state, the way out of which is seen by leading economists only in the development of the main budget-forming industries. At the same time, any expansion of production at the moment is possible only with the participation of the state, since now foreign investments cannot be expected for the next five years. The support of the population is of no small importance in these difficult economic conditions, and the simplification of the taxation system for businesses should come second.