Structural reforms, fiscal discipline can help unleash Ukraine's economic potential

• Pages: 209-211

Page 20

After four years of impressive gains, largely attributable to favorable external conditions and prudent macroeconomic policies, Ukraine's economic performance weakened significantly in 2005, the IMF said in its annual economic review. As a result of political and policy uncertainties that have hurt business confidence and investment, along with slow progress on structural reforms and less favorable external conditions, growth fell from a peak of about 12 percent in 2004 to a cumulative growth rate of 2.2 percent from January through November 2005, inflation accelerated, and the current account surplus fell by half.

The IMF Executive Board welcomed the authorities' expressed commitment to fiscal discipline; steps toward greater exchange rate flexibility; further progress in market-strengthening structural reforms, including some reduction in corruption; and efforts to resolve lingering uncertainty over property rights. Steadfast implementation of the authorities' sweeping vision of structural reforms, along with a reduction in inflation, is needed to unleash the economy's untapped potential. A gradual shift to increased exchange rate flexibility and inflation targeting, said the Board, would help the central bank achieve low and stable inflation.

The Board urged the authorities to continue to resist pressures to raise spending, particularly on social transfers...