Ukraine lawmakers must act in a very quick fashion to correct the countries imbalance in the economy that threaten to widen the current account and budget deficits beyond the control of the government, said the World Bank.
The lender, based in Washington, said Ukraine must allow more flexibility in currency exchange rates and end the gas-price subsidies to qualify for bailout funds from international lenders.
The international lender lowered its estimate for the 2013 economic growth for Ukraine from 1% to zero.
At present, Ukraine is in a struggle with a shrinking economy, contracting foreign reserves, a widening gap on current accounts and trade restrictions from neighbor Russia, its largest market for exports.
By delaying an overhaul to the economy until past the presidential elections scheduled for 2015, would make the changes at that time even more difficult and eventual recovery slower, said the international lender.
Ukraine’s bonds from the government due in 2014 fell, pushing the bond yield to over 15.1%, the highest it has been in over a week.
On September 20, Moody’s Investors Service downgraded the debt rating for Ukraine by a full level to Caa1. That level is seven below investment grade. The service cited increasing economic and political risks due to relations deteriorating with Russia, low reserves in the central bank and no progress on a possible bailout from the IMF.
The reserves in the central bank are sitting at a low of seven years of just $21.7 billion as of the end of August. That is down by over $8 billion form just last year.
Policymakers have had to dip into the fund to support country’s currency the hryvnia. The balance is lower than the prices of three months of imports, which is a threshold many economists deem as important to keep financial stability.
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