Macro: COVID-19 Update Ukraine: Mounting fiscal costs amid plummeting economy turn all attention to the IMF

Same as in other CEE countries the quarantine measures due to Covid-19 had profound impact on Ukraines economy. With industrial and construction outputs plummeting due to pandemic, overall economy will see more severe slump this year. Positively, the NBU was successful in stabilizing the UAH exchange rate through FX interventions. The government adopted stimulus measures to help ailing economy, with fiscal deficit target for the year jumping to 7.5% of GDP after the approval of the revised budget law. The money will be allocated respectively for extra medical expenditure, for supplementary transfer to the Pension Fund and to the State Regional Development Fund. The cabinet also intensified efforts to secure the IMF deal. With the IMF proposing now SBA loan instead of the EFF agreement for Ukraine the government hopes to receive money fast, as SBA contains less conditionalities. On the other hand, investor confidence is likely to remain restrained due to the inability of Ukraine to fast track reform process due to which Ukraine failed to reach the EFF deal. The monetary policy response has been strong with the NBU adopting proactive countercyclical stance including a larger-than-expected 200bp rate cut and liquidity boosting measures. Furthermore, the NBU said it remains ready to cater more easing including rate cuts if the economic situation will worsen.


This Research was produced and first published by Raiffeisen Bank International AG which is supervised by the Austrian Financial Market Authority and the National Bank of Austria.