IMF: Ukraine Demonstrates Improvement but Challenges Remain

KYIV, Ukraine, November 4, 2013 /PRNewswire/ --

Ukraine's economy shows signs of improvement, stated the head of the International Monetary Fund (IMF) mission to Ukraine Nikolay Gueorguiev in a report provided as a result of the mission's work in Kyiv on October 17-29, reported Ukrinform. Nevertheless, the report also mentioned the remaining challenges which include the limited exchange rate flexibility, a large budget deficit and significant losses in the energy sector. Ukraine's key vulnerability was identified as the need for significant external financing.  

During the two weeks that the mission analyzed the situation in the eastern European country it's members also had meetings with key government officials as well as representatives of the private sector and the civil society. In conclusion, the mission has come up with the list of recommendations and reforms in order to boost the economy improve investment potential and raise productivity. Particularly, the mission recommended that Ukraine increases the exchange rate flexibility, increases domestic energy tariffs and introduces reforms to improve business climate.

The mission noted that the confidence in the banking system has improved due to high average capital adequacy ratio and reduced foreign exchange positions. To improve the situation further IMF recommended to use independent bank audits to check the quality and adequacy of loan classification, provisioning and collateral, reads the organization's website.

The IMF also proposed to cut staff and salaries in the public sector, reduce subsidies as well as government spending on goods and services. In addition, the mission recommended to increase the gas and heating tariffs for the households so that the cost recovery level could be reached. To mitigate the consequences of the increased tariffs for the people with low-income the mission suggested to expand the targeted social assistance to about 40 percent of the population.

Despite the existing challenges Ukraine has been focusing on reforms and improvements for some time now. Just in October 2013, the World Bank and the IFC experts have acknowledged tremendous progress of Ukraine in simplifying conditions for doing business. Having leaped 25 positions since last year, the country is now ranked 112 among 189 economies in the Doing Business 2014 report. Ukraine has implemented regulatory reforms for local entrepreneurs in eight areas out of 10 between June 2012 and June 2013.