REUTERS
Ukraine's Cabinet of Ministers has presented its base-case and low-case scenarios with the government's macroeconomic indicators due to the blockade of the occupied areas of Donetsk and Luhansk regions, in particular, the hryvnia may weaken by UAH 5.6 against the U.S. dollar by the end of the year, according to Ekonomichna Pravda, a Ukrainian business news outlet.
The low-case scenario predicts GDP will fall by 2.5 percentage points (pp); the nominal GDP will shrink by UAH 39 billion, while inflation will see growth by 8.5 pp. In this case, the hryvnia will lose UAH 5.6 per dollar by the end of 2017, Ekonomichna Pravda said.
The base-case scenario, in turn, suggests that the pace of economic development in 2017 will slow only by 1.2 pp, nominal GDP will shrink by UAH 25.8 billion, while inflation will accelerate by 1.8 pp.
In addition, the blockade will put pressure on the hryvnia. The national currency is expected to weaken by another UAH 3 to the dollar by the end of 2017.
Due to the devaluation, revenue from import VAT will bridge an expected shortfall in this tax from the reduction in imports. A similar metamorphosis can occur with import duties.
Read alsoUkraine elaborates on taxes paid by occupied Donbas in 2016The fall of the hryvnia is expected to be a major budget compensator.
Without taking into account forex fluctuations, the budget will lose about UAH 10 billion. However, if the hryvnia falls as the government estimates, the collected taxes will increase by UAH 14.8 billion. As a result, the revenue of the budget will exceed spending by UAH 3.9-4.7 billion.
As UNIAN reported earlier, Ukrainian President Petro Poroshenko on March 16 enacted a decision by the National Security and Defense Council of Ukraine to suspend all freight traffic, except humanitarian supplies, through the contact line in the Anti-Terrorist Operation area.
In January, a group of Donbas war veterans and some Members of Parliament blocked rail tracks used to transport anthracite coal from the temporarily uncontrolled areas. In this connection, the Cabinet of Ministers introduced emergency measures in the electric power industry.
In response to the blockade, Donbas militants announced the "nationalization" of enterprises located behind the contact line and owned by Rinat Akhmetov's SCM financial and industrial group. Following that, the SCM management reported it had lost control of the assets.
On March 19, Ukraine's key creditor, the International Monetary Fund (IMF), updated the schedule of its Executive Board meetings for the current week, according to which the meeting on the disbursement of another $1 billion to Ukraine, originally scheduled for March 20, was postponed indefinitely.
According to Ukraine's Finance Ministry, the delay was related to the need to clarify macroeconomic indicators due to the introduction of a trade blockade of the occupied territories of Donetsk and Luhansk regions by the decision of the National Security and Defense Council.