Covid-19 crisis in Ukraine

Das Coronavirus gefährdet die Bevölkerung in den Volksrepubliken im Osten der Ukraine besonders. Nirgends sie die Menschen so alt wie dort. Nikolaus von Twickel berichtet für LibMod / Zentrum Liberale Moderne
Des­in­fek­tion von huma­ni­tä­ren Hilfs­gü­tern des Roten Kreuzes bei seiner Ankunft an der DNR, © Alex­an­der Rekun/​ Imago

Im Rahmen unseres Pro­jek­tes „Öst­li­che Part­ner­schaft 2.0“ ver­öf­fent­li­chen wir eine Arti­kel­reihe über die drei EU-Asso­zi­ie­rungs­staa­ten (Ukraine, Geor­gien, Moldau). Drei Autorin­nen und Autoren aus der Region (Vero­nika Movchan, Irina Guruli, Sergiu Gaibu) ana­ly­sie­ren die gesund­heit­li­chen, poli­ti­schen, wirt­schaft­li­chen und sozia­len Aus­wir­kun­gen von COVID-19 in ihren Ländern.

It is too early to assess a full-scale impact of the Covid-19 pan­de­mic on Ukraine. This crisis is not close to its end neither in the world nor in Ukraine. However, it is already clear that the effect will be highly harmful and likely long-lasting.

The spread of the disease has not been curbed yet. As of June 7, Ukraine regis­tered 27 thousand cases, over half of which still being active, and 788 deaths. The number of new infec­tions has remai­ned high. A mode­rate down­ward trend of early May turned into an upward-sloping pattern later on. The first week of June fea­tured +3650 new cases, the highest number ever regis­tered in Ukraine.

Moreo­ver, despite the noti­ce­able acce­le­ra­tion recently, the number of tests per capita stayed the second-lowest in Europe (9,693 per 1 million). The latter causes con­cerns that the actual spread of the disease could be more exten­sive than detec­ted. The high rate of infec­tions among medical per­son­nel reaching about one-fifth of total cases further exa­cer­ba­ted the dis­as­ter.

However, the uncer­tain epi­de­mic situa­tion has not pre­ven­ted the gradual lock­down easing star­ting early May as the eco­no­mic hardships, and general lock­down fatigue inten­si­fied demands for the re-opening.

The aut­ho­ri­ties have intro­du­ced the con­tain­ment mea­su­res in mid-March when only a few first cases have been detec­ted. The mea­su­res inclu­ded the closure of edu­ca­tio­nal and enter­tain­ment estab­lish­ments, retail stores (except those selling food, pharma and per­so­nal pro­tec­tive equip­ment), open markets, restau­rants, sports faci­li­ties, and – most import­antly – trans­port. The country stopped inter­na­tio­nal and domestic pas­sen­ger trans­por­ta­tion, except for selec­ted muni­ci­pal routes though acces­si­ble only by special permits.

These mea­su­res, con­tri­bu­ting to the disease spread con­tain­ment, has had a devas­ta­ting blow on the natio­nal economy, espe­cially on SMEs working in ser­vices. The domestic eco­no­mic hardships were ampli­fied by the very nega­tive Covid-19 impact on the neigh­bou­ring coun­tries inclu­ding the EU, the largest trade partner of Ukraine, the dis­rup­ti­ons in global supply chains, and incre­a­sed global price vola­ti­lity. Moreo­ver, the return of labour migrants could cause a reduc­tion in the inflow of remit­tan­ces, aver­aged at ca. 8% of GDP in 2015–2019.

April figures confirm the hard eco­no­mic hit of the Covid-19 crisis. The monthly retail sales dropped 15% in April over a year earlier, while pas­sen­ger trans­por­ta­tion by bus mea­su­red by passenger/​km reduced by 95%, and pas­sen­ger rail and under­ground trans­por­ta­tion ceased utterly.

Alt­hough neither indus­trial pro­duc­tion nor freight trans­por­ta­tion was stopped, they were affec­ted by second-round eco­no­mic effects. The freight trans­por­ta­tion mea­su­red by ton/​km dropped by 27% in April over a year earlier, with the par­ti­cu­lar hit taken by truck­ing.  The indus­trial pro­duc­tion was down by 16% in April dragged by reduced manu­fac­tu­ring of metals, machine buil­ding, textile and leather pro­ducts, and con­struc­tion mate­ri­als. The only indus­tries demons­tra­ting posi­tive trends were manu­fac­tu­ring of che­mi­cal and phar­maceu­ti­cal pro­ducts, the demand for which boomed.

As in other coun­tries, the crisis hurts the labour market. The number of newly regis­tered unem­ploy­ment doubled to 156 thousand in the period between mid-March and end-April, while the total number of unem­ployed reached 457 thousand vs 7,346 thousand hired employees. Apart from layoffs, employ­ers have been actively using partial employ­ment or tem­porary leaves. As a result, a total working time dropped by 15% in April over a year earlier, with much deeper slumps in selec­ted sectors like hos­pi­ta­lity sector (-68%), trans­port (-24%), trade (-20%).

As a result, the real GDP dropped by 1.5% already in the first quarter of 2020. In com­pa­ri­son, the annual drop is esti­ma­ted at 6–11% depen­ding on the sce­n­a­rios of both dura­tion of the domestic con­tain­ment mea­su­res and the deep­ness of the global reces­sion.

Still, the macroeco­no­mic picture of this crisis has been dif­fe­rent com­pa­red to the other crisis epi­so­des in Ukraine. Thanks to the immense efforts aimed at banking system clea­ning and the estab­lish­ment of sound mone­tary policy, the exchange rate and infla­tion have remai­ned so far stable. The con­su­mer price index was at healthy 2.1% in April over a year earlier. The initial panic causing a depre­cia­tion of the hryvnia from UAH/​USD 24.6 in end-Febru­ary to 28.1 a month later calmed down as the NBU sold some of its inter­na­tio­nal reser­ves, and the exchange rate retur­ned to below UAH/​USD 27 levels in May. Moreo­ver, the NBU managed to restore its inter­na­tio­nal reser­ves, and it has been gra­du­ally redu­cing its policy rate to sti­mu­late eco­no­mic growth with mone­tary easing.

The current account balance has also been stable. The much sharper reduc­tion in imports of goods and ser­vices com­pa­red to a very mode­rate drop in exports resul­ted in a posi­tive balance, coun­ter­ba­lan­cing the finan­cial account outflow.

The fiscal situa­tion has not been as reas­su­ring. The state deficit is expec­ted to reach about 7% of GDP, as the country needs higher spen­ding to cope with the Covid-19 crisis, while the reve­nues have been decli­ning. Moreo­ver, 2020 has been one of the years with peak exter­nal public debt repay­ments.

Thus, the resump­tion of coope­ra­tion with the IMF has become an abso­lute prio­rity. The ful­film­ent of several vital pre­con­di­ti­ons – the lifting of the mora­to­rium on agri­cul­tu­ral land sales and the adop­tion of the law banning the return of natio­na­li­sed banks to its owners – allowed Ukraine to achieve a staff-level agree­ment with the IMF regar­ding a new USD 5 billion Stand-By Arran­ge­ment in May. Its appro­val is expec­ted already in the first half of June. The IMF support has also unblo­cked the MFA from the EU, and the World Bank credits. Still, the much needed foreign direct invest­ments and large-scale pri­va­ti­sa­tion are unli­kely to realise this year.

The Covid-19 crisis has not con­tri­bu­ted to the sta­bi­li­sa­tion of domestic poli­tics. The Cabinet of Minis­ters headed by Oleksiy Hon­cha­ruk was dis­mis­sed in early March when the first signs of the forth­co­m­ing Covid-19 crisis started to show up. The new Government formed by Denis Shmygal has already wit­nessed several changes of minis­ters, inclu­ding the Minis­ter of Health­care, and has still been working without the appro­ved Program. The Government acti­vi­ties have been accom­pa­nied by scan­dals, inclu­ding the alle­ga­ti­ons of cor­rup­tion in medical pro­cu­re­ments and the failed police reform. The judi­cial reform is stalled, the process of com­mu­nities’ amal­ga­ma­tion under the decen­tra­li­sa­tion reform halted. At the same time, the peace initia­ti­ves in the con­flict with Russia have been hardly accep­ta­ble for a part of the society. However, the public appro­val of Pre­si­dent Zelen­sky has remai­ned high, while the nega­tive sen­ti­ments are direc­ted towards the Government and the Par­lia­ment.

Ukraine has not yet entered a perfect storm, but the com­bi­na­tion of the deadly virus, eco­no­mic hardships and poli­ti­cal unease do not promise easy and quick revival.

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