Forecast of Ukraine’s economic developments in 2001–2002 Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web: International Centre for Policy Studies February 28, 2001

Presentation outline Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web: Why macroeconomic forecast Forecast of real sector variables Forecast of financial variables Issues and risks

Why macroeconomic forecast? Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web: Business activities occur within a given macroeconomic environment For each business, the macroeconomic environment is a source of benefits as well as risks Macroeconomic forecast helps to evaluate these benefits and costs related to the risk

What does macroeconomic environment consist of? Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web: Financial conditions –price levels –exchange rates Demand –domestic consumption –expectations of households and enterprises –conditions in foreign markets Supply –productivity of the economy Government policies and regulations

What is happening in Ukraine’s economy? Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web: Improvement in government policy lifted household and business expectations Household consumption is recovering after long period of depression Business investments is increasing at two- digit rates of growth

GDP growth Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web: In 2000, Ukraine GDP grew by 6% We forecast that in 2001 GDP growth will increase by 5%, in 2002 — 5.5%

Real GDP, 1995–2002 Index, Q1’1995=100, seasonally adjusted Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web:

Why is Ukraine’s economy growing? Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web: Consistency of government policies are ensured due to new procedures of government decision-making The most distorting taxes are cancelled Improvements in budget policy benefit the poorest Financial stability has been achieved Effects from privatization are being realized both in industry and agriculture World economy is on the crest of the cycle

How are households feeling? Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web: In December, 2000 Consumer Confidence Index was 14.3 percentage points up In 2000, real private consumption increased by 8.5% Larger incomes transfer into fast consumption increase due to high propensity to consume Private consumption will rise by 6.5% in 2001 and by 6% in 2002

Consumer confidence across income groups Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web:

How are businesses feeling? Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web: In 2000, investment increased by 11%, mostly originated from profits Investments will grow by 10% in 2001 and by 12% in 2002 Businesses are learning to withstand enhanced competition Growing economy presses for the reform of natural monopolies

GDP and hours worked, % annual change Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web:

Financial indicators Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web: Exchange rate will not fluctuate significantly in 2001–2002 Nominal hryvnia will slightly depreciate, while hryvnia in real terms will revalue Rate of inflation will decrease to 17% in 2001 and 14% in 2002 International central bank reserves will increase by around $600 million annually

Exchange rate and inflation Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web:

Issues for investors Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web: Is government capable to implement reforms? Will the political consensus be preserved? Is it plausible to decrease inflation below 10%?

Government capacity to implement reforms is weak Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web: There is no such rule in the government that implementation plan is attached to every decision Implementation is not being evaluated in terms of effectiveness and efficiency Neglect of the implementation issues resulted in the uncertainty about future tax policy

Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web: Political debate can bring positive changes Political instability creates risk to consensus on economic reforms and delays adoption of new legislation Political debate will promote political reforms to ensure sustainable consensus Public pressure will raise the issue of accountability of law- enforcement agencies

Monetary policy debate Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel , Web: The goals of monetary policy are to increase international reserves and to decrease inflation National Bank will give priority to rising international reserves Foreign currency purchase by National Bank will keep two-digit rate of inflation in 2001– 2002

About ICPS

The International Centre for Policy Studies is an independent non-profit research organisation, established in 1994 upon the initiative of the Open Society Institute Our mandate is to promote the introduction of public policy concepts and practices in Ukraine: –to increase awareness in the government and the general public of the need to analyse policy alternatives and to study the possible consequences of adopting any given policy before adopting strategic decisions What is ICPS? Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel /38 Web:

Economic policy Public administration Educational policy European integration Regional policy ICPS areas of specialisation Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel /38 Web:

Independent policy research –Ongoing research/Publications –Commissioned research Training for policymakers –Assisting governments –Assisting NGOs A forum for public dialogue ICPS services Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel /38 Web:

Customers: business, government, and international organisations Essence: we apply its economic and other expertise in order to develop strategic solutions for clients Principles: (1) participation of all interested parties; (2) presentation and analysis of all points of view; and (3) independent conclusions and recommendations Commissioned research Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel /38 Web:

Causes and effects of the illegal import and circulation of tobacco products in Ukraine (commissioned by the Coalition for Intellectual Property Rights) –Research report –Expert discussion + seminar –Publication and dissemination Example of commissioned research Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel /38 Web:

Publications –Quarterly Predictions –Policy Studies –Consumer Confidence –Economic Statistics –ICPS Newsletter Direct access to economists for advice Seminars –Tailored to Partners’ needs –Other events Partnership Plan–2001 Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel /38 Web:

ICPS is a not-for-profit institution and it can receive only donations, not fees Donation for Partners in year 2001 —1,995 hryvnias ($345) Partnership Terms Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel /38 Web: