A Ukrainian fiscal expert has warned that the war-torn country faces financial “collapse” unless there is a speedy and peaceful solution to the current bitter conflict. The dire warning comes ahead of much-awaited talks between Russian President Vladimir Putin and the leaders of France, Germany and Ukraine at a summit in Belarus on Wednesday.
Viktor Pavlov, a financial analyst, says that the war in Eastern Ukraine has already caused “hyperinflation”, depreciation of the hryvnia, the Ukraine currency, and also led to funding cuts in most government programmes.
He called on the international community to find a swift solution to the dispute that has raged since April last year. More than 5,400 people have died since the conflict began and civilian casualties have risen in recent weeks.
Pavlov, who is based in Kiev, said all sides involved in the conflict “have a very short time to restore order and prevent economic disaster.”
The prolonged conflict has added to the economic strains on Ukraine, which is seeking a new bailout from its Western backers.
Ukraine’s international reserves are now at their lowest since early 2004, posing increasing risks for the country’s ability to service debt and steer itself out of the financial crisis.
Ukraine is living through the most severe economic and financial crisis in its modern history. The hryvnia has lost more than half its value over the past year while the economy is set to contract for the second consecutive year in 2015.
Officials at the Group of 20 meetings in Istanbul said on Tuesday that the International Monetary Fund has broad political support to move ahead with a new, multibillion-dollar emergency financing package.
An IMF team negotiating the budget belt-tightening and economic-policy overhauls needed for the fund to approve the package is expected to wrap up negotiations in Kiev in the next several days, officials said.
In an interview, Pavlov said, “Russian banks have received additional refinancing and now control nearly 20 percent of the Ukrainian financial market.”
He condemned “corrupt acts” which, he said, are aimed at undermining the “economic situation and the independence of Ukraine.”
“All sides have a very short time to restore order and prevent economic disaster and the collapse of the economy.”
Pavlov added, “The crash of the financial system would simply kill all investments in Ukraine and ruin integrated European business, including banks which have branches in Ukraine.
“This situation will badly influence the financial environment of Europe.”
He warned, “If the economy collapses the enemy will appear at European borders within a month.”
The conflict is said to be costing the country $10 million a day according to Ukraine President Petro Poroshenko.
In an interview with France 24 released Monday, Poroshenko said his country needs a total of between $13 billion and $15 billion in funding in 2015 and 2016.
Kiev accuses Moscow of supporting pro-Russian rebels involved in the military conflict in eastern Ukraine. Moscow has repeatedly denied any official involvement.
By Martin Banks