presentation for the federation of paasikivi societies international centre for policy studies kyiv,...

Presentation for the Federation of Paasikivi

Societies

International Centre for Policy StudiesKyiv, 22 April 2005

What is the International Centre for Policy Studies?

• ICPS is an independent research organization, founded by the Soros-funded Open Society Institute in 1994

• Our goal is to promote public policy concepts and procedures in Ukraine

• ICPS works with different interest groups — government, business, NGOs, mass media

Міжнародний центр перспективних дослідженьInternational Centre for Policy Studies

Tel. (380-44) 236-4477Web: www.icps.kiev.ua

Research areas

• Economic policy• Policy analysis• Public administration reform• European integration• Regional policy and local government• Development of non-government

organizations• Education policy



Regular publications• Quarterly Predictions — a quarterly overview of Ukraine’s economy

and 3-year development forecasts (the only product of its kind in Ukraine)

• Political Commentary — an analytical monthly that evaluates Ukraine’s government policy and the various processes affecting it

• Consumer Confidence — a unique quarterly survey of household expectations in Ukraine, generating five standard indices

• Economic Statistics — a monthly table of statistical data that are important for doing business in Ukraine

• Regional Trends — analysis and forecast of regional development and regional policy; special publication published in 2003

• Policy Studies — an occasional series providing the results of ICPS research on key issues of government policy, including an annual analysis of the impact of legislative changes on the business climate in Ukraine

Information about ICPS services is posted at www.icps.kiev.uaInternet shop launched in May 2003



• Analysis of public policy alternatives and formulation of recommendations

• Analysis and development forecasts for specific markets

• Medium-term forecasts for macroeconomicand regional development indicators

• Impact analysis of company activities, particularly investment projects

• Analytical support for strategic planning• Research into consumer behavior

Business services



• Impact Analysis of the Enactment of the Mixed Excise Taxation System for Tobacco Products (JTI)

• Survey of Bank Lending in Ukraine (Club of Officers’ Enterprises)

• Analysis of the Telecommunications Market in Ukraine (Kyivstar)

• Building a static financial model for Ukrtelecom (designing the methodology for Ukrtelecom’s cost distribution in accordance with provided services and calculated real and normative cost of Ukrtelecom’s services) (Ukrtelecom)

• Impact of WNISEF Portfolio Companies on Ukrainian and Moldovan Economies (Western NIS Fund)

Business services: examples



Political situation

The Orange Revolution

• The results of presidential elections of October–November 2004 were falsified

• Protests were widely supported (especially by young people and SMEs)

• On 26 December 2004 most Ukrainians voted for Viktor Yushchenko

• Constitutional reform was approved by the legislature



Political competition today

• Three pillars of the new opposition: the Communists, Yanukovych’s Party of the Regions and Medvedchuk’s SDPU (o)

• Other forces look scattered, but they’ll try to merge in order to take part in the next election

• At the moment, the opposition conditionally supports initiatives of the Government

• The 2006 elections are the next big prize to be contested



Three myths about Ukrainian political life

• The East-West division• The rivalry between President Victor

Yushchenko and Premier Yulia Tymoshenko• The witch-hunt in Ukraine, in terms of both

expropriation and incarceration of political opponents



The Government’s priorities

• Ensuring transparency of public policy• Fighting corruption• Fulfilling election promises regarding social

security and pensions• Curbing inflation• Abolishing privileges for select businesses• Reforming the military



Policy shortcomings

• The Government still relies only on itself: its decisions are not often informed by external expertise

• The lack of a process of stakeholder discussion• The political cycle with the target of winning in

2006 often results in myopic policy: strategic goals are overridden by short-term tasks and promises to voters

• Top-managers of the reforms face the need to develop capacities of state institutions



Geopolitical situation

• Although Ukraine has declared almost 20 countries its strategic partners, we consider Russia, the EU, and the US the main foci of Ukrainian foreign policy

• Ukraine is becoming a distinct centre of democratic and market reforms in the Eastern Europe

• Relations with the EU and the US are improving



Foreign policy priorities

• ‘Inherited’ joint projects with Russia: (1) Common Economic Area, (2) Gas Transport Consortium

• Improving relations with the US and the European Union is motivating Ukraine to carry out domestic economic and democratic reforms

• The EU still considers Ukraine a ‘new neighbor’, but its stance on potential membership is more optimistic



Economic situation and forecast

Rapid economic growth continuesGDP, real % change



-8.7 -9.9

-14.2

-23.0

-12.2-10.0

-3.2-1.9

-0.2

5.9

9.2

5.2

9.68.0

6.0 6.5

12,0

-25

-20

-15

-10

-5

0

5

10

151991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

What’s behind Ukraine’s economic revival?

• A population that is “getting” what business and market conditions mean

• High prices for export goods on foreign markets

• Active privatization• Growing consumer incomes and a developing

domestic market• Macroeconomic stability



Current economic trends

• Economic growth is slowing down: we expect real GDP to grow 8% in 2005

• The government is sharply raising social spending

• Inflation is on the rise, mainly due to increased consumer spending

• World prices for key exports are still high



Economic policy limitations

• The new Government is concerned mainly with short-term priorities: e.g. fighting inflation, reviewing shady privatization deals

• The Government still lacks a clear strategic agenda that would facilitate sustainable economic development



Forecast for 2005

• A slowdown in GDP growth to 8%–chiefly due to a high baseline in 2004, a slowdown in investments, and a gradual flattening of world commodity prices

• A Budget deficit of up to 4% of GDP• Inflation driven by high consumer demand

and reaching 16% at year-end



• The Consolidated Budget deficit should reach 4% of GDP in 2005 after not exceeding 2% of GDP since 1999

• This deficit is being covered by privatization revenues and borrowings

• Borrowing will be divided evenly between foreign and domestic markets

• The deficit will not be investment-oriented and will speed up inflation

Budget deficit



Steep growth in social payoutswill push deficit to 4% of GDP



20

22

24

26

28

30

32

34

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Revenues

Expenditures

Assumptions of external situation

• Annual growth of key trade partners will outpace global growth in 2005–2007

• World oil prices will remain above US $40 for at least H1’05 and fall to US $30–40 in 2006

• World metal prices will decline slightly in 2005

• WTO accession will take place in the end of 2005 or early 2006


Tel. +380-44-236-4477Web: www.icps.kiev.ua

GDP of Ukraine’s trade partners, Exports and Imports, % annual change



-25

-15

-5

5

15

25

35

45

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

GDP of major trade partnersExports of goods&servicesImports of goods&services

Current account balance, % of GDP



-6-4-202468

1012

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Structure of Ukrainian exports, %



0

5

10

15

20

25

30

35

1998 1999 2002 2003 2004

CISEU-15EU-10EU-25 (EU-10 + EU-15)

Major risks

• Steep hryvnia appreciation• Government failure to deliver on campaign

promises• Lower-than-expected Budget revenues• Sharp price fluctuations for Ukrainian

exports on external markets• Failure to accede to the WTO in late 2005

or early 2006



Thank you for your attention

The International Centre for Policy Studies

presentation for the federation of paasikivi societies international centre for policy studies kyiv,...

Documents