A leading economics expert has warned that Ukraine’s military conflict with pro-Russian separatists in the industrial east will force the Kiev government to shelve hopes of resuming economic growth until 2016. The warning, from Irina Akimova, comes in the wake of similar dire predictions from the World Bank that Ukraine’s economy was likely to shrink by 8 percent this year and contract further in 2015 because of the effect of the war in the east.
The state of the Ukrainian economy is at the forefront of campaigning ahead of the country´s keenly-awaited parliamentary elections on 26 October.
Akimova is a key economics advisor to the Opposition Block political party which is contesting the elections and outlined her ideas on how to help kickstart the ailing Ukraine economy in an interview with The Brussels Times.
She said a peaceful outcome to the current ongoing conflict in Eastern Ukraine was “essential” to reviving what she describes as a “huge slowdown” in economic growth in Ukraine.
A ceasefire between Ukrainian government forces and the pro-Moscow rebels took effect on September 5 but the truce has been shaky, prone to violations. Ten people were killed by a burst of shelling in Donetsk on Wednesday.
Akimova, who was the first head of the presidential administration in Ukraine, said a GDP rate of -4 (projected to fall even further to -10 by the end of this year) was being particularly felt by “ordinary citizens” who had seen a dramatic reduction in their wages and pensions.
“Without a peaceful outcome to the current conflict it will be very difficult to attract the necessary investment, not just in the East but in Ukraine generally, ” she said.
She also called for stricter control of government debt which she predicts will rise from 40 per cent at present to as much as 70 per cent by the end of 2014.
Akimova, who is director of the analytic centre “New social end economic policy”, a Kiev based think tank, also demanded a “recovery plan” for Eastern Ukraine, including a “more closely targeted” social support system for the most needy.
The association agreement with the EU which was recently signed in Kiev (but does not come into effect until 1 January 2016) was “encouraging” and be “very significant” in the long term, she said.
It was “vital”, she said, that the Ukrainian government prepares to implement this wide ranging trade deal “at the earliest opportunity.”
But, looking to the immediate future, she also said it was crucial that there is “no weakening” in EU sanctions against Russia.
“On the other hand, it is hard to see President Putin giving up the positions Russia has gained in Eastern Ukraine and, for that reason, I can well see continuous conflict in this part of the country.The risk of this is going to remain very high.”
Akimova, former chair of the Committee for Reforms of Ukraine, was a keynote speaker at a one day conference in Brussels on Friday on “Ukraine crisis: towards reconcilliation through inclusiveness.”
The World Bank’s forecast was a further downbeat assessment for the economy because of the conflict.
It has hit production of key industrial sectors such as steel and energy in the Donetsk and Luhansk regions, hardest hit by fighting in which about 3,500 people have been killed, according to U.N. estimates.
Ukraine Prime Minister Arseny Yatseniuk said at a meeting with foreign investors on Thursday that the implementation of the IMF programme was the government’s priority.
By Martin Banks