A deal with cash-strapped Ukraine was originally supposed to be the centerpiece of today’s “Eastern Partnership” EU summit in Lithuania. But last week Ukraine froze plans to sign the EU integration agreement in favour of overtures from Russia.
The trade deal with the EU was expected to stimulate much-needed investment flows to Ukraine and exports via the removal of trade tariffs. But as this was contingent on reforms, benefits were likely to be longer term. A deal with Russia on the other hand – potentially a lowering of the price at which the country imports gas – could give a short term fillip to the economy.
Here is why Ukraine’s economy desperately needs a boost.
First, and most crucially, is the question of Ukraine’s falling foreign exchange reserves.
As of October, foreign reserves stood at $20.6bn, down $6bn in the last year and only just covering three-months worth of imports – a level seen as the danger zone by many economists. And even under the most benign scenario projected UniCredit modeled this August see reserves falling further: Read more