Politics Seriously Imperiling Ukraine Recovery, World Bank Says

  • Prolonged crisis would damage confidence, undermine growth
  • Lender sees economy expanding 1% this year, 2% in 2017

The political crisis that’s engulfed Ukraine is endangering the nation’s nascent recovery from a 1 1/2-year recession, the World Bank warned.

Further delays to end what’s already been months of sparring among Ukraine’s leaders would damage confidence and undermine economic growth, Qimiao Fan, the lender’s director for Ukraine, Belarus and Moldova, said Friday in Kiev, the capital. Gross domestic product will rise 1 percent this year, accelerating to 2 percent in 2017, according to the bank, which has pledged $4.7 billion in financing, $2.1 billion of which hasn’t been transferred yet.

Two years on from a revolution that dislodged its Kremlin-backed leader, Ukraine’s politics have been rocked by infighting over stalled reforms, triggering the resignations of key officials and holdups in transfers from a $17.5 billion bailout. President Petro Poroshenko’s party is trying to lure independent lawmakers so it can form a new ruling coalition to back Parliament Speaker Volodymyr Hroisman, its nominee for prime minister.

“The current political crisis is a serious threat to the very fragile recovery," Fan told reporters. If it goes on too long, the crisis “will damage significantly confidence both of consumers as well as investors, and will damage the confidence of international community in Ukraine."

Political uncertainty and stuttering anti-corruption efforts have halted disbursements from the International Monetary Fund’s rescue loan, as well as bilateral aid from allies including the U.S. Investors are rattled, sending the hryvnia 7.9 percent lower against the dollar this year, data compiled by Bloomberg show.

‘Faster Implementation’

“What we need to make sure before we commit any new financing in Ukraine is that the money that’s already been affirmed by the World Bank can be used efficiently and quickly,” Fan said. “What we would like to see is better and faster implementation of the existing money we have already provided before we can consider any new financing.”

The parties of Poroshenko and incumbent Premier Arseniy Yatsenyuk need four more lawmakers to reach the 226 votes required for a majority in the 450-seat parliament. Hroisman, an ally of the president, has prioritized restarting cooperation with the IMF, saying Ukraine must “flawlessly” implement its bailout program.

As the crisis drags on, analysts polled by Bloomberg have cut their economic-growth forecasts. GDP will probably grow 1 percent this year, down from a forecast for 1.4 percent expansion made three months ago, according to a survey of 15 economists.

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