2015 was a year of many wins and losses for Ukraine. The year started with a big escalation of military conflict in the East of the country, which pushed economy to a larger recession than previously expected. It led to sharp hryvnia depreciation, inflation above 40%, drop in industrial output, and contraction of domestic demand. Fragile macroeconomic stabilisation was reached in the third quarter of 2015. The Government has finally started implementing long delayed and necessary reforms. Deregulation was among largest successes in government policies last year. Some progress was also made in implementing anti-corruption measures, but they were slow and much remains to be done. Introduction of pilot project in electronic procurement in 2015 and the approval of the law on Public procurement (that becomes effective in 2016) are among major achievements. The National Bank of Ukraine moved to more flexible exchange rate, though did not cancel administrative measures at the market. The banking sector became more sound as problem banks were liquidated. Fiscal situation improved last year as high inflation resulted in additional revenues from such taxes as VAT and excises. Overall, long list of reforms is still in the agenda.The Government launched long-awaited reforms. Changes began in the political and administrative area, the law enforcement system, and the economic area. However, the reforms were perceived largely as insufficient and slow.
Politics. The Government launched long-awaited reforms. Changes began in the political and administrative area, the law enforcement system, and the economic area. However, the reforms were perceived largely as insufficient and slow.
Real Sector. Real GDP in 2015 declined by 9.9%. Loss of economic links and sharp drop in domestic demand are the major reasons for economic downturn. At the same time, net real exports made a positive contribution to real GDP growth as real imports contracted more than real exports.
Agriculture. Agricultural sector benefited from deregulation measures implemented in 2015. Still, agricultural production decreased by 4.8% due decline in both crop and livestock sector. At the same time, trade surplus in agri-food sector grew by 4.5% to USD 11.1 bn.
Energy policy. The Government continued increasing energy tariffs as part of energy reform. This step is aimed to decrease energy subsidies and introduce market prices at the energy markets.Ukraine imported 70% of its gas from Europe via reverse gas flows thus decreasing its dependency on Russian gas.
Infrastructure. The Government increased housing and utility tariffs as well as rail freight and passenger tariffs. The Government continued to reform railroad sector.
Balance of Payments. Balance of payments turned to surplus of USD 0.9 bn, or 0.9% of GDP from a deficit of USD 13.3 bn (10.1% of GDP) in 2014. Such sharp change is explained by significant improvement of both current and financial accounts.
Income. High inflation and fiscal pressure resulted in drop of real disposable income by 22.2%.
Fiscal policy. Fiscal situation was encouraging in 2015. The Government was able to meet the revenues target mostly due to inflation and hryvnia depreciation. Fiscal deficit declined. Still, the Government had to restructure sovereign debt due to low chances to timely and fully serve debt in 2015 and 2016. However, the Government failed to approve comprehensive tax reform, did not implement pension reform as well as reform of social assistance system.
Monetary policy and financial sector. Consumer inflation was 48.7% on average in 2015 (the highest inflation since 1996). This happened in response to sharp hryvnia depreciation in the end of 2014 and first half of 2015. During the year the NBU strengthened the role of monetary policy. It also continued to clean up banking system from problem banks.