Ukraine neck-deep in debt, vows to climb out

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Kyiv has reacted to Russia saying it will discontinue preferential prices for gas for Ukraine within weeks. Prime Minister Arseniy Yatsenyuk has talked about raising gas prices for Ukrainian households, privatisation plans for his country’s energy giant Naftogaz, and simplifying business dealings in Ukraine.

Yatsenyuk said: “We will try to turn the tap in another way. Russia has no right to violate the bilateral agreement between Ukraine and Russia. We will find the financial resources to pay the debt. Russian can’t misuse gas as a weapon against Ukraine.”

Russia is Europe’s biggest gas supplier, providing around a quarter of continental demand, and by some estimates 60 percent of that transits Ukraine. Sixty percent of Ukraine’s gas is supplied by Russia. The debt stands at more than one billion euros.

The newly appointed Minister for Economic Affairs has also promised to fulfil all of the requirements if the International Monetary Fund. Ukraine has asked the IMF for some 11 billion euros to avert bankruptcy.

Its hryvnia currency has been trading at close to 12 to the US dollar. Growth, which was more than four percent in 2010 is negative today. The public debt is 43 percent of GDP. The World Bank places Ukraine low on a list of global investment confidence: 137 out of 183 countries.

And yet the head of a major investment company in Ukraine has been optimistic.

Tomas Fiala, CEO at Dragon Capital, said: “When the political change started Friday a week ago, Eurobond prices moved up five points, then on Monday last week another five points. The stock-market went up 20 percent, and there was a lot of money still coming in, but it was kept back by the news from Crimea.”

But we also spoke with a small business owner who told us that the weakening of the currency has pushed up costs of imported fabric. This means she has to price her collection around 20 percent more than planned. Ironically, this women’s fashion brand is called ‘Must Have’; but sales are suffering.

Owner Anna Kovalenko said: “Of course, it’s not just the gloomy mood that makes people buy less. Obviously, many people simply don’t know what will happen tomorrow, whether they will have their salaries, whether things will be stable. Many people prefer to save their money rather than spend.”

The expert we spoke to said that some investors went cold as Crimea hung in doubt, but that others had unfrozen projects they had put on hold during the last three months’ unrest – among them food processing, property and pharmaceutics.

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