Ukraine’s Economy: On the Edge

By Stizzard

THE Ukrainian economy would rather forget 2014. But 2015 may be little better: GDP is still shrinking. Gas payments, defence and support for the hryvnia, which lost half its value in 2014, have bled the government dry. Foreign-currency reserves fell by a quarter in December, leaving just $ 7.5 billion, equivalent to only five weeks’ worth of import cover. The central-bank head talks of a “full-blown financial crisis”. Some $ 11 billion of debt repayments loom in 2015. That includes a $ 3 billion Russian bond which falls due in December, but contains an early-repayment provision if Ukraine’s debt-to-GDP ratio exceeds 60%. Bond yields are soaring: Moody’s, a rating agency, calls the chances of a Ukrainian default “exceedingly high”.Official statistics should come out soon, but the 60% limit has almost certainly been breached. Russia says it can demand repayment, though it insists it does not want Ukraine to default. If Russia called the bond, other creditors could also demand immediate repayment. The threat is a useful negotiating tool for the Kremlin. In any case, Ukraine needs more help. The European Union is offering €1.8 billion ($ 2.1 billion);…

The Economist: Europe