Following the pattern we have identified in other countries in the region, Ukraine is once more getting itself into a deeper and deeper mess.  Part of the problem is political, part of it is economic, and part is a combination of the two.  Moreover, Ukraine has one of the most severe demographic problems in the CEE, which is itself a region of grave demographic problems.


Ukraine’s working age population is in terminal decline, both in absolute terms and as a share of the total population.  Indeed, given the almost extreme forecast of population decline in Ukraine it is remarkable that the working age share of the population is declining this fast.  The size of the prime working age (30-50 year age group) is a measure of a country’s total growth rate the future looks bleak for Ukraine.

Ukraine was one of the worst affected countries following the onset of the global financial crisis. Industrial output slid by more than 30% due to a massive overdependence on steel, the price of and demand for which had fallen off a cliff. The country is now getting into ever deeper problems since elections are due later this year, and while the IMF is demanding increases in the energy tariff the government is stubbornly resisting.

The country needs a deal with the IMF, since it faces external debt servicing costs of $52.5bn (around 30% of GDP) this year alone.  A large chunk of this debt is in the banking system, but roughly $5.4bn is owed by the government ($3.5bn of which is due to the IMF). Put together, Ukraine’s external financing needs could be close to $58bn this year – equivalent to 34% of GDP. This is why CDS prices on the country have been rising sharply this year, against the global risk trend. Recent rumours that Ukraine wants to postpone paying back the Fund for the 2008-09 bailout for as long as 10 years will obviously not happen, but this is the problem for the IMF, in a nutshell.  Bailed out economies are fine until they need to pay back.

And the country has one more problem to confront – the construction slowdown in China, which could easily send global steel prices hurtling down.

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