Hryvnia collapse will put Ukraine's stability at risk

Tuesday, March 3, 2015

Significance

In order to receive new IMF lending, the budget also introduces big gas price rises, and increases defence spending. Meanwhile, the hryvnia's disastrous February weakening exceeded all the previous bouts of depreciation and is a major concern for Kyiv. For the first time in many years, people began stocking up on basic foodstuffs. With domestic demand for foreign currency driven more by panic and lack of trust in the hryvnia than anything else, the Ukrainian central bank (NBU) will struggle to restore any relative currency stability.

Impacts

  • Austerity steps could provoke social discontent but absent new currency shocks, the situation should remain generally manageable.
  • If the currency continues to fall after expected IMF support, Ukraine risks complete economic meltdown.
  • Pensions for working pensioners will fall by 15%, causing dissension within the coalition from the Samopomich and Batkivshchyna parties.
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