Macroeconomic performance and policy

Abstract

This chapter presents the analysis of recent economic performance and macroeconomic policy that will frame the discussions of structural and regulatory reform in Chapter 2 and of competitiveness, competition and productivity developments in Chapter 3. The main conclusions of this analysis may be summarised as follows: Recent strong growth has been driven in part by factors that are likely to prove transitory, including terms-of-trade gains, comparatively low energy prices and the existence of substantial spare capacity. If Ukraine is to sustain strong growth over the medium-to-long term, it will need to make the transition to a pattern of self-sustaining investment- and innovation-led growth. Macroeconomic management has succeeded in keeping debt low and deficits in check, but pension system sustainability presents a serious challenge, and the economy is already subject to a very high level of fiscal pressure. A de facto nominal dollar peg remains the cornerstone of monetary policy. While a nominal anchor served Ukraine well in the aftermath of the 1998 financial crisis, it is now contributing to the volatility of inflation and increasing risks, not least those associated with growing dollarisation. The major challenges facing Ukraine as it seeks to embark on a sustainable catch-up path include improving framework conditions for business, reforming product markets to make entry and exit easier, and strengthening competition.