Economical overview
Ukraine's path from planning economy to
market economy has been tricky. A severe economic
downturn characterized the 1990s and the robust growth
that began at the turn of the millennium brought an
abrupt end to the global financial crisis of 2008-2009.
In recent years, intensified conflict with Russia has
created uncertainty about Ukraine's economy. The country
has a large heavy industry and is heavily dependent on
foreign trade.
During the Soviet era, Ukraine was an economic
heavyweight among the sub-republics with extensive
agriculture, large metal industry and manufacturing of
electronics, vehicles and military equipment. But
already in the late 1980s, the economy went into a
crisis. The downturn that followed was interrupted by
the subsidized exchange of goods and services that
existed within the Communist Soviet Union. Ukraine must
start paying world market prices for oil and gas to the
energy-consuming industry. At the same time, Ukrainian
industrial goods proved to be insufficient to compete on
the world market. Attempts made to liberalize the
economy encountered patrol.
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Countryaah.com:
Major imports by Ukraine, covering a full list of top products imported by the country and trade value for each product category.
When the economy did a deep dive in Russia in the
late 1990s, Ukraine was drawn. Production collapsed in
all sectors and the country was close to state
bankruptcy. At the beginning of 2000, gross domestic
product (GDP) was estimated to have shrunk by about 70
percent since 1990. One explanation for the crisis being
both deep and long lasting was political contradictions
about economic policy. The privatization of state-owned
enterprises was slow, and foreign investment failed due
to complicated tax laws, difficult-to-understand rules
and corruption within the administration.
Industries that were privatized largely ended up with
a few oligarchs and their "clans", which came to
dominate business in their regions. This has had
consequences for political development. The ties are
close between business and political leaders.
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Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including UKR which represents the country of Ukraine.
From 2000, an upturn began. The turnaround was partly
due to reforms that the newly appointed Prime Minister
Viktor Yushchenko propelled. A system of exchange trade
between companies and payment of wages in goods was
replaced by money transactions, which increased the
state's tax revenue and improved the transparency of the
economy. They also began to break up the old Soviet
system with large collective farms and divide the land
into privately owned family farms. The result was
increased production.
A contributing reason was good growth in Russia, the
most important export market. Increased demand meant
that important industries such as steel mills,
engineering and chemical industries could increase their
production. Agriculture and the food industry also
performed well. The standard of living was raised and a
strong middle class began to emerge. Growth averaged 7
percent per year in 2000–2007. Real wages increased, as
did domestic consumption.
But the global financial crisis of 2008-2009 hit hard
on Ukraine. Steel exports, which accounted for almost
half of GDP, fell and production fell dramatically.
Ukraine was forced to apply for external loans. The
International Monetary Fund (IMF) pledged $ 16.5 billion
against the government implementing a crisis package,
but it could not prevent a banking crisis. Many jobs
were lost in the steel and chemical sectors. In the
industrial areas in the south and southeast, thousands
of workers were laid off without pay. GDP fell by 15
percent in 2009, one of the worst results in the world.
Ukraine did not meet the terms of the IMF loans and
disbursements were suspended. At the end of 2009, the
situation was critical. There was no funding for state
salaries and pensions, and the government was forced to
request increased credit from the IMF to meet
installment loans on the previous year. In 2010, Ukraine
requested additional loans. While talks with the IMF
were ongoing, Ukraine had to borrow $ 2 billion from
Russia for urgent needs. Shortly thereafter, the IMF
issued a $ 15 billion new loan. But the payments were
resumed in 2011, when promises of pension reform and
abolished subsidies to the state gas company Naftagaz
were not fulfilled.
The economy turned in 2010 and 2011, GDP grew by just
over 5 percent. In 2012, growth fell again, and both the
budget deficit and foreign debt increased. Contributing
reasons were that the IMF once again held back loans,
while the debt crisis in Europe created an international
slowdown.
In the autumn of 2013, the situation was once again
crisis-prone. Five quarters in a row, the economy had
shrunk and industrial production decreased by 6 percent.
Ukraine's large international debt burden had caused the
gold and foreign exchange reserves to shrink to cover
less than three months of imports, which economists
consider to be the absolute minimum. The problems caused
the government (against public will) to refrain from
signing a cooperation agreement with the EU in order not
to risk penal sanctions from the important trading
partner Russia, which also offered greater financial
support than the EU, without demands for reform.
Following a dramatic regime change in February 2014,
Ukraine was rescued from immediate failure through
support loans from the western world. The IMF granted US
$ 17 billion and the EU a total package of EUR 11
billion, both loans and aid. The United States promised
loan guarantees for a billion dollars. At the same time,
the country was plagued by a $ 3.1 billion debt to
Russian Gazprom that would have to be paid so that gas
supplies would not be stripped. Continued payments of
support from the West required strict government
measures in the form of abolished subsidies, increased
taxes on imported goods, reduced social spending and
anti-corruption efforts. At the end of 2014, it was
found that GDP had shrunk by 7.5 percent during the
year, that inflation had risen to over 20 percent and
that the currency was falling half its value.
In 2015, when full conflict prevailed with Russia
over the Crimean peninsula and with Russian-backed
separatists in eastern Ukraine, the country's economy
was almost in free fall. The aid money paid out seemed
to have disappeared into a black hole and another around
$ 40 billion was promised from the IMF and a number of
countries. In December, the IMF changed its own lending
rules in order to continue its payments. Actually, the
Fund was not allowed to give more money to Ukraine
because the country was involved in a dispute with
Russia over loans granted during President Yanukovych's
time (see Modern History) and which Russia now demanded
back.
When in March 2017, the government introduced an
economic blockade against breakout areas in the east,
the central bank was forced to write down the forecast
for developments during the year. The IMF held the next
loan disbursement because the blockade changed the
economic conditions. In 2018, a new agreement was
announced between the IMF and Ukraine, which would
replace the most recent agreement. And now the fund
demanded that the government really implement a number
of promised measures to strengthen the treasury. For
citizens, this meant, among other things, that energy
prices had to be raised.
Nevertheless, the economy has fared better than
feared during the war years. In 2018, 3.3 percent growth
was achieved. Household consumption has been kept up,
partly because the government did not raise energy
prices as much as the IMF demanded. But the war
situation makes the outlook uncertain. And despite all
the promises of reforms and strict demands from the
lenders, Ukraine has also not been able to overcome the
corruption. To this can be added the new dark clouds
that accumulated when the corona pandemic erupted. In
March 2020, Ukraine wrote down its forecast for the year
from 3.7 percent growth to a minus 3.9 percent.
Trade in obstacles
In addition to the serious conflict around the
Crimean peninsula and the Prorussian separatist areas in
the east, the economy has been in disagreement with
Russia over gas supplies going through Ukraine to
Western Europe. Finally, on New Year 2019/2020, a new
agreement was concluded between Ukraine and Russia on
the transit gas, while clearing financial obligations
between the gas companies that were settled in
arbitration. In the background, Russia's and Germany's
construction of gas pipelines through the Baltic Sea,
the Nord Stream project, means that Ukraine's revenues
from land transport decrease.
The country's largest trading partner is now the EU
collective, which in 2016 accounted for more than 40
percent of Ukraine's exports. In 2017, trade in goods
between the EU countries and Ukraine increased by an
average of 24 percent. Trade between the EU and Ukraine
is governed by a free trade agreement from 2016, a
deepening of an association agreement from 2014. Ukraine
mainly sells raw materials (mining and agricultural
products), chemical products and machinery equipment to
the EU. Ukraine buys oil, gas and finished goods from
outside. Small and medium-sized businesses in Ukraine
can receive support through EU initiatives also directed
to Georgia and Moldova.
In 2012, Ukraine ratified a free trade agreement that
a number of former Soviet republics had concluded the
year before, within the framework of the CIS. Ukraine
became the third country to do so, after Russia and
Belarus. In 2016, Ukraine was excluded from the
agreement on the order of Russian President Putin. It
was on the same day that Ukraine's free trade agreement
with the EU came into force.
In July 2016, Ukraine signed a free trade agreement
with Canada, similar to the agreement with the EU. In
early 2019, a free trade agreement was concluded with
Israel.
Ukraine has excellent conditions for shipping with
navigable rivers. In the Black Sea there are important
port cities such as Odessa, Kherson, Mykolaiv and
Ilyichovsk. Following the Russian annexation of the
Crimean peninsula, connections to and from ports in the
east have become more difficult. Russia has built a
bridge between Crimea and the Russian mainland, which
was completed in 2018. For ship traffic to and from
Ukrainian ports on the Azovska lake, this entails, among
other things, time-consuming procedures when crossing
the bridge.
For a long time, Ukraine had about 20 million foreign
visitors a year, but since the conflict with Russia
broke out in 2014, the number has roughly halved,
despite the fact that most of the country is as safe as
before. Through the Russian annexation of Crimea,
Ukraine lost one of its most popular tourist
destinations, Yalta.
Products from the Crimea and investments there are
not allowed by the Western countries because the Russian
annexation of the peninsula is not recognized.
FACTS - FINANCE
GDP per person
US $ 3 095 (2018)
Total GDP
US $ 130 832 million (2018)
GDP growth
3.3 percent (2018)
Agriculture's share of GDP
10.1 percent (2018)
Manufacturing industry's share of GDP
11.5 percent (2018)
The service sector's share of GDP
51.3 percent (2018)
Inflation
8.7 percent (2019)
Government debt's share of GDP
60.2 percent (2018)
External debt
$ 113,281 million (2017)
Currency
Hryvnia
Merchandise exports
US $ 43 345 million (2018)
Imports
US $ 55 954 M (2018)
Current account
- US $ 4 287 million (2018)
Commodity trade's share of GDP
80 percent (2018)
Main export goods
coal, metals, agricultural products
Largest trading partner
Russia, China, Turkey, Germany, Turkmenistan, USA,
Poland, Italy, Switzerland
2004
December
The presidential election is redone
December 26
The second round is reversed, and now Yushchenko is victorious, according to
the official result, with 52 percent of the vote against 44 percent for
Yanukovych.
November
Protests against election results
Election polls show that Viktor Yushchenko has won the second round of
elections in Viktor Yanukovych's presidential election, but the election
commission gives the victory to Yanukovych. Mass protests erupt, hundreds of
thousands of Ukrainians demonstrating with orange symbols.
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