Ukraine On Verge of Economic Collapse - IMF Going to Ukraine

Ukraine On Verge of Economic Collapse - IMF Going to Ukraine An international Monetary Fund (IMF) mission will arrive in Kiev on Monday and start consultations on Tuesday, an official at the Ukrainian central bank said. The official, who declined to be named, gave no further details. Ukraine's new leaders say the country needs about $35 billion in financial assistance over the next two years to avoid bankruptcy. Another rating firm, Fitch, has downgraded the country from B to CCC, a pre-default level. In recession since mid-2012 and having had two IMF rescues mooted since the 2008 global crisis, Ukraine's current account deficit is a record 8% of GDP and its currency has hit a record low against the US dollar. Its economic woes are a reminder of how challenging the process of economic transition can be. None of the key numbers look pretty more than two decades after it abandoned central planning and became a market economy. Economic growth was tepid in the 1990s and its stalled transition in the early years, until the mid 1990s, made room for oligarchs that came to dominate key sectors. By the end of the 1990s, GDP per capita was only half of what it was before its transition. But, the picture had looked more promising since 2000, when GDP grew rapidly from $31bn to $140 bn by 2007, with the private sector contributing the bulk of growth after decades of state dominance, established during the time when it was part of the Soviet bloc. Then the global crisis hit and last year, the only sector contributing strongly to growth was agriculture, according to the European Bank for Reconstruction and Development's (EBRD) 2013 report. With an average income that is less than one-tenth of that of the eurozone, Ukraine is in need of significant reform. For instance, in the World Bank doing business index, it ranks worse than its neighbours in Europe (112 out of 189) and near bottom for tax payments. With the country now on edge and under military mobilisation, Ukraine also faces financial challenges. Its central bank two days ago imposed capital controls, limiting foreign currency withdrawals to 15,000 hryvnia or $1,500 per day. As money has left the country ever since political tensions arose last November, when its government turned away from firming up trade links with the EU, its foreign exchange reserves fell to $16 bn, or perhaps to as low as $12 bn, which covers only about 2 months of imports. Reserves have also been drawn on to pay for foreign debts which total a whopping 80% of GDP. If it can't pay its debts, or for its goods and services, Ukraine faces the prospect of default.