ECONOMIC RESEARCH

A Step Back From the Brink?

February 24, 2014

The dramatic events that led to the formation of a new reformist majority in parliament have provided a second chance for Ukraine’s battered economy. However, this would require the prompt formation of a new government able to undertake the reforms needed to alleviate the acute macroeconomic imbalances, put the economy on sound footing and safeguard an external financial support. With the Russian bailout likely to be put on hold, this assistance should amount to at least $20 billion this year alone. Given the massive adjustment needed and the social and economic pain it would entail, this government would need to be inclusive, credible and enjoying broad-based popular support. Risks of prolonged political uncertainty still remain substantial, however, raising odds of delays in implementing reforms with potentially disastrous consequences for financial stability and growth.