Ukrainian economy resumes growth



Almost unnoticed, economic growth in Ukraine has turned positive and the pace of growth has quickened.  This is important not only for the material well-being of Ukrainians but because more than anything else economic growth promises a more secure future for Ukraine.

In its September Update, the World Bank confirmed GDP growth of 0.8% in the first half of 2016 and projected growth of 1.0% for the full year.  The World Bank also projected growth of 2.0% in 2017 and 3.0% in 2018, in line with its April forecast.  Even more promising though is that the underlying economic indicators have strengthened significantly.  Consumption is projected to increase 0.2% in 2016 rather than declining -1.3% as previously forecast.  Fixed investment is expected to climb 9.5% rather than 8.7%.  In 2017 consumption and fixed investment are expected to climb 2.9% and 10.5% before leveling off in 2018 at 3.1% and 5.6%, respectively.  Early strength in consumption and investment is good news because these provide a stronger base for future growth with continued implementation of sound economic and monetary policies.

Fragility with respect to fiscal and current account balances and risk of Russian aggression in eastern Ukraine remain key concerns.  However, corruption is the greatest threat.  In an accompanying Special Focus Note, the World Bank states,

“Powerful vested interests across a wide range of sectors seriously impede progress in addressing key development challenges. A two-pronged strategy is important in addressing Ukraine’s governance and corruption challenges. The first involves building institutions of public financial management (PFM), anticorruption, justice, and public administration. The second prong involves advancing progress on reforms across the three challenges that undermine vested interests. Both will require nurturing citizens’ engagement, voice, and accountability to overcome vested interests. [Emphasis added]”

Missteps such as the Ukrtransgaz fiasco and doubts about the pace of judicial reform do not instill confidence; nor does the failure to prosecute a single case of corruption from the period of Yanukovych’s administration or, more importantly, recent corruption.

If, as the World Bank writes, citizen engagement is key to economic and governance reform, what are the prospects for engaging civil society?  

Like economic growth, there are promising signs of improvement.  In contrast to Russia’s recent parliamentary election results, Ukraine has an energetic, fractious parliament, where no one party can dominate the debate. This slows progress sometimes but in the right circumstances, it strengthens consensus.  Ukraine also has a dynamic civil society, where citizens freely express their views from far left to far right.  Even so, despite what Russia would have the world believe, the great majority of Ukrainians are not extremists but are somewhere in the political middle, which promises inclusion and social stability.  

With Western economic support, Ukraine’s economy is orienting toward business opportunities in the West including through foreign investment and trade.  If anyone doubts the benefits of foreign investment and trade, let them examine where Russia stands after two years of increased isolation.

In the near future, Ukrainians will enjoy visa-free travel with the European Union, which will increase their familiarity with the larger world where rule of law and fair dealing are commonplace.  Already in Kyiv, unlike 10 years ago, one can hear English spoken almost anywhere as young Ukrainians assimilate new ideas and innovations.  This week on Kyiv’s “high street”, Khreschatyk, the largest store selling Ukrainian clothing and accessories opened selling 150 domestic brands.  Innovative, entrepreneurial businesses can be found in Kyiv, Lviv, Odesa and throughout Ukraine.  For a great read on how civil society activism is changing Ukrainian society read Atlantic Council on “How Ukrainian Geeks Tackled Corruption…” A new generation is emerging steeped in patriotism but also with a keen sense of social justice and unwilling to accept the status quo.

As the World Bank released its update, Ukrainian parliamentarian, Nadiya Savchenko, was in Washington to discuss Ukraine’s reform prospects.  Ms. Savchenko has come to embody the courageous spirit of a strong, independent Ukraine after her stubborn refusal to buckle under Russian pressure while on trial in Russia on fabricated war crime charges.  After two years she was exchanged for two Russian soldiers who were captured in eastern Ukraine while on a reconnaissance mission.  She speaks with impressive resolve about the challenges and the determination of the Ukrainian people to reform Ukraine.  In her view, not enough has been done to end corruption, but there is no going back.    

On the economy, Ms. Savchenko welcomed Western support, but she emphasized that the objective was to build a self-reliant Ukraine, which at the moment is looking considerably more promising.

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