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Ukraine consumption to decline in 2014 if Kiev meets IMF requirements — World Bank

April 10, 2014, 10:17 UTC+3 WASHINGTON
According to the World Bank, in 2014 the consumption level may fall by 8%, while the decline in fixed investment will not be so considerable
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© ITAR-TASS/Stanislav Krasilnikov

WASHINGTON, April 10. /ITAR-TASS/. The fulfilment of the requirements of the International Monetary Fund (IMF) by Ukraine may cause a decline in the level of consumption and investment in production, which will affect the economy growth, the World Bank (WB) noted in a report on Ukraine.

The document says that these measures under the IMF program (that provides for increasing tariffs on household gas and district heating tariffs) “will negatively affect purchasing power and limit government’s ability to boost capital spending this year,” the document says. “Thus, in 2014, we expect to see a decline in both consumption and fixed investment.”

According to WB experts, in 2014 the consumption level may fall by 8%, while the decline in fixed investment will not be so considerable.

“The move to a flexible exchange rate will help to reduce the current account gap. At the same time, weak growth expected by main trading partners will translate into slower export demand for Ukraine’s goods and services,” WB experts note.

The World Bank also noted that “renewal of cooperation with the IMF as well as with other international partners should boost investor confidence in Ukraine and lower costs of external financing. This should help to stabilize foreign reserves at a level equivalent to 2 months of import cover.”

According to previous reports, the WB is forecasting a 3% decline in Ukraine’s GDP in 2014. However, if quick structural reform is carried out, in 2015, the growth may account for 3% thanks to recovery in business activity and foreign investment. According to the forecast, the inflation rate in 2014 would reach 15%.

In late March, the IMF announced it agreed to grant a $14-18 billion stabilization loan to Ukraine. The first $3 billion tranche may be transferred this spring. In exchange for financial assistance, Kiev should make the rate of the national currency - the hrivnya - more flexible, gradually increase the tariffs on household gas and heating, conduct pension reform and cut budget expenditures.

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