Emerging Europe Watch: Ukraine’s external pains

by: Arjen van Dijkhuizen

Ukraine's external pains ()

With a high current account deficit largely financed by portfolio flows and a rising external debt service, Ukraine’s external liquidity position has come under further stress. External financing options have deteriorated and FX reserves have fallen to dangerously low levels, so the risk of external payment problems is rising.

The hryvnia’s peg to the US dollar has contributed to these external risks and weaker growth. Geopolitically sandwiched between Russia and the EU, securing a new IMF loan is probably the best way forward to deal with the current stress. However, political commitment to the Fund’s preconditions remains uncertain, even though time is running out.