The Ukrainian Economy
Ukraine is located centrally to the European mainland, with connections through the Black Sea to the Mediterranean, to Western Europe, to Northern Europe and eastwards to Russia and the Caspian states.
Until the break-up of the former USSR, Ukraine was the most economically important Republic, generating more than a quarter of Soviet agricultural output and important industrial products production. Following independence, ratified in December 1991, privatisation and liberalisation of most prices witnessed a surge in economic activity in the newly independent state.
However, by 1999 output had fallen to less than 40% of the 1991 level and the country’s industrial sector was later particularly badly affected by the 2008 credit crisis, especially due to deteriorating world prices for steel, the country’s most important export.
Although trade with EU countries now exceeds that with Russia, Russia is the largest individual trading partner. Ukraine forms an important part of the pipeline transit route for Russian gas exports to Europe.
A dispute over price rises prompted Russia briefly to cut supplies for use by Ukraine in January 2006 and raised concerns across Europe too. The gas was switched back on only after Ukraine agreed to pay almost twice the former price, which rose sharply again for 2007. In January 2009, Russia again cut gas supplies in a row over unpaid fees.
Although Ukraine has a productive oil and gas industry, it is dependent on Russia for three-quarters of its energy supplies which have become more costly since 2006. The IMF supported the country with a US$16.5 billion standby facility in November 2008 but persistent political wrangling over governmental budgets has threatened further support.
IMF Ukraine mission chief Ceyla Pazarbasioglu, left, and Ukraine’s Prime Minister Yulia Tymoshenko talk during a Kiev news conference in July 2009. Source: Reuters.
Not being a member of the European Union and outside the political sphere of Russia, the Ukraine needs to plough its own furrow and has to compete with these larger and more powerful neighbours without subsidies.
