World Bank Director for Ukraine hopeful about economic recovery

In general, there are positive prospects for the Ukrainian economy in the long-term outlook, Mr. Fan said at the European Business Association's General meeting "Ukraine's Business Climate: Global Outlook."

Mr. Fan says it is essential to believe in Ukraine's future. The country has a third of the world's black earth and an advantageous geographic position with proximity to Europe's strongest markets along with a significant transit potential, the World Bank Country Director said. However, he pointed out to the poor performance of public institutions in Ukraine. Yet, he said, if there had been no improvements or progress in the past 18 months, Ukraine would not have received $5 billion in investment.

According to Mr. Fan, some positive signals regarding the Ukrainian economy appeared in the second half of last year. In the first half of 2015, Ukraine's GDP contracted by almost 16%, while in the second half of the year the decline slowed. Based on results of 2015, the country's GDP fell by 11.6%. The World Bank predicts that GDP will grow 1% in 2016.

"We expect Ukraine's economy to grow by 1%. However, the figures are not very stable. All in all, they will not increase significantly. For a visible effect it is important to continue reforms and build up the economy. Moreover, Ukraine needs to start looking beyond the EU in terms of export markets, e.g. Asian countries," he said.

But with the economy being so beaten-up over the past two years, the rate of GDP growth at 1%, 2%, or 5% in 2016 will not make a big difference. But the recovery, albeit small, will allow investors to gradually restore confidence in the Ukrainian economy, which plays a bigger role than specific growth projections, Mr. Fan noted, adding that the economic decline has reached the bottom, and the economy will begin to recover. It is necessary to maintain such positive dynamics, because the recovery is still fragile, according to the World Bank Country Director.

Mr. Fan also pointed to a number of significant risks, namely the macroeconomic situation in the world. There is an uncertainty and turbulence on the global financial markets. China's economy is slowing down, and so are other BRIC economies. A 1% decline in their GDP will inevitably affect the global economy. The situation is exacerbated by a slow economic recovery in European countries, a rate increase by the Federal Reserve, a difficult economic situation in Ukraine's neighboring countries. The World Bank Country Director also expressed his concerns over markets of primary commodities and their deterioration. There was a sharp decline in prices for commodities which make up a significant part of Ukraine's export. Though prices of grain did not decline significantly. Still, there are no signs of recovery on the market for metals or chemical products, according to Mr. Fan.

He also named another negative factor for the country's economy – a sharp decline in trade turnover with Russia. In 2015, export to Russia accounted for only 15% of the total export volumes, and it continues to decline. But the entry into force of a free trade zone agreement between Ukraine and the EU is expected to bring an advantage to Ukrainian exports, enabling them to introduce European standards, and in the longer term – boost exports.

Mr. Fan also noted a significant demand for Ukrainian products in Asia, Africa and the Middle East. He believes investors from these regions will be interested in the country's export potential and will invest in production expansion if they see an improvement in the investment climate in Ukraine.

Mr. Fan also emphasized the importance of addressing the ongoing conflict in the east of the country. He said Ukraine may see more intensive economic recovery if the conflict could be constrained or resolved. But its escalation will undermine the prospects of economic recovery in the country.

Among other risks influencing the situation in the country is a progress with the reforms implementation. The Ukrainian government has carried out far-reaching stabilization reforms in the face of significant challenges. But at the same time, Mr. Fan stressed, the complexity and unprecedented nature of these challenges show that those reforms will not be enough. Mr. Fan said the pace of reforms implementation has significantly slowed in recent months. In this regard, the World Bank Country Director mentioned discussions regarding the state budget for 2016, debates over the tax reform, and the delay in fulfilling the requirements of the Memorandum with the International Monetary Fund. Blocking the reform process has become one of the major threats to the economy of Ukraine in 2016, according to Mr. Fan.