Ukraine Economy Facts
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.
- 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.
- 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. Check findjobdescriptions to learn more about 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)
US $ 130 832 million (2018)
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)
8.7 percent (2019)
Government debt’s share of GDP
60.2 percent (2018)
$ 113,281 million (2017)
US $ 43 345 million (2018)
US $ 55 954 M (2018)
– 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
The presidential election is redone
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.
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.