US$25 billion aid for Ukraine not enough: Analyst
Tuesday, February 25, 2014
LONDON - Western countries are preparing US$25 billion financial aid for Ukraine despite the requested US$35 billion, a senior economist from Standard Bank said.
The Ukrainian Finance Ministry has announced on Monday that it needs US$35 billion in foreign assistance and appealed for urgent aid following the overthrow of former president Viktor Yanukovych by violent mass protests.
Referring to the aid call from Ukraine, Timothy Ash, head Of emerging markets research at Standard Bank, said that most probably Ukraine`s incumbent finance minster, Yuriy Kolobov, will not be on duty in the near future.
Ash said that Ukraine has economic difficulties in addition to political problems and said that "EU officials and politicians are suggesting that they put together a support program for Ukraine of approximately US$25 billion, although this is likely to be a multi-year program, under the auspices of the IMF, and still tied to a tough economic reform agenda."
In 2014, Ukraine is obliged to pay roughly US$68 billion while currently, the current account deficit of the country is equal to 9 percent of Gross Domestic Product (GDP).
Indicating the rising possibility of an economic recession in 2014, he said "I assume now though that we will not have any cheap Russian gas, and hence no significant benefits from reduced gas import costs."
He added that capital outflow may speed up and especially oligarchs and the elite may withdraw their investments from the country.
Also the downgrading of Ukraine`s sovereign rate much below investment grade by many credit rating agencies recently create new difficulties for the country, which is already strained with political unrest.
In the last two months, the local currency of Ukraine, Grivna, lost 10 percent in value against the dollar and foreign exchange reserve declined significantly.
On the other hand according to the UK Telegraph newspaper, the UK is preparing for financial assistance to Ukraine to help tackle economic difficulties due to recent political changes in the country.
Also the EU Commission spokesman Olivier Bailly said, "The EU has been working on an international economic support package for Ukraine - short, medium and long-term support to address the challenges of the Ukrainian economy."
He explained that they do not exclude any possibility regarding the financial assistance and they are in touch with the European Commissioner for Economic and Monetary Affairs Olli Rehn High Representative of the Union for Foreign Affairs and Security Policy Catherine Ashton, the International Monetary Fund, the European Investment Bank and the European Bank for Reconstruction and Development.
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