World Bank keeps Ukrainian GDP decline forecast for 2009 at 15%

15:00

The World Bank has retained its forecast for the fall in Ukraine's gross domestic product (GDP) in 2009 at 15%, although it revised upwards the GDP growth forecast in 2010 from 1% to 2.5%, World Bank senior economist Ruslan Piontkivsky said at a press conference on Thursday.

He said inflation in Ukraine in 2009 is projected at up to 14%, and in 2010 at up to 11%.

As the World Bank said in a press release, the Consumer Price Index (CPI) growth in 2009 is expected at 13.8%, and in 2010 at 10.6%. Ukraine's nominal GDP in 2009 is forecast to shrink to UAH 912.3 billion, down from UAH 949.9 billion in 2008, while in 2010 it is expected to expand to UAH 1.032 trillion.

As reported earlier, the World Bank in July 2009 downgraded its forecast for the expected fall in Ukraine's GDP in 2009 from 9% to 15%, but improved its inflation forecast from 16.4% to 13.4%.

It predicted that real GDP was to grow 1% in 2010, with consumer prices growing by 10.5%.

In its recent economic update, the World Bank says that Ukraine's state and guaranteed debt in 2009 is to increase to 36.7% of GDP, and in 2010 to 41.7%.

The bank's experts say that in 2009 there will be a deficit of Ukraine's current account balance of 0.6% of GDP, whereas in 2010 Ukraine will see a surplus of 0.1% of GDP.

"Ukraine's real sector bottomed out in the first half of 2009, but fiscal and financial pressures give no grounds for complacency," reads the World Bank's economic update on Ukraine dated October 15, 2009.

The World Bank says that while reflecting the global outlook it improved its growth forecast for 2010, but domestic demand is likely to remain subdued.

"The key reason for the GDP forecast upgrade to 2.5% [in 2010] is the improvement of the situation in the world. Recently, forecasts for the global economy were revised. The key impact on the Ukrainian economy will be seen via a rise in export demand," Piontkivsky said.

He said that one should not expect a quick restoration of foreign demand for Ukrainian exports to pre-crisis levels; rather, this would take at least several years.

The World Bank believes that the fiscal deficit remains the key problem for macroeconomic stability in the country due to a growing fall in tax payments.

"A balanced budget should be urgently approved... Our analysis of the national budget for 2010 shows that a deficit of 4% GDP is unachievable without considerable trimming of expenditure," reads the press release.

The World Bank said that the government's macroeconomic forecasts for 2010 are too optimistic, while expenditures, especially pension payments, have been underestimated.

"If there are no changes, the total deficit [in 2010] could exceed 8% of GDP," reads the release.

World Bank senior economist Pablo Saavedra said at the press conference that high budget deficit in Ukraine could create problems in its financing and become a threat to macroeconomic stability.

"We hope that authorities and law-makers... will draw up the budget that will help Ukraine to revive and give a proper signal to the international markets," he said

Saavedra also said that it is important to reform the law on state purchases, revise prices of electricity and gas for households, and conduct pension reform. He said that the large burden of social programs on the budget could fuel inflation.

Commenting on pension reform, Saavedra said that the World Bank proposes a gradual rise in the age of retirement for women.

"The World Bank proposes changes in the retirement age for women. We propose to increase the pension age every six months. The reform would last for ten or 15 years, which would be a rather gradual reform that would not affect people," he said.

He also said that the World Bank believes that pension payments for working pensioners who already receive large pensions should be restricted.