A recent World Bank report on Ukraine- Creating Fiscal Space for Growth: A Public Finance Review;
“Recent economic and fiscal trends in Ukraine, combined with the financing requirements of the reform agenda, have brought fiscal pressures to the fore. Ukraine’s economy grew by more than 50 percent between 1999 and 2004, but growth decelerated from 12.1 percent in 2004 to 2.6 percent in 2005. Contributing to this slowdown were less favorable terms of trade dynamics (in particular for metal prices)1 and a substantial deceleration in investment demand (partly as a result of uncertainty about government policies and cutbacks in public investment). Despite the recovery of the economy in the first semester of 2006 (5 percent growth y/y), the short term outlook is still threatened by potential further increases in energy prices in 2007. At the same time, increasing public spending threatens to crowd out the private sector. Driven by hikes in pensions and public sector wages, public spending soared from 39.4 to 44 percent of GDP in 2005, placing significant pressure on public finances. This high public spending and its consumption orientation risks generating inflationary impulses and higher interest rates, and eroding household wealth. Ukraine also has a high tax burden which discourages the private sector.”
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