Executive Summary:

  1. The ceasefire agreed in Minsk is continuously violated by Russian-backed separatists. Despite the fact that both sides started the separation of forces process on September 1st, the number of casualties is still significant.  During the month of September, Ukrainian military forces lost 45 people in the zone of Antiterrorist Operation (ATO) in the Eastern part of the country. Russia also continues to use all possible elements of its hybrid war, including measures aimed at increasing tensions on Ukrainian borders.
  2. Ukrainian authorities are hard-pressed by both local civil society and its international partners to move forward the country’s reform agenda. The major short- and medium- term goals are concentrated in the area of fighting corruption and ensuring law and order in the country.  As a result, Ukraine is showing some progress in several corruption fighting initiatives.
  3. According to the latest release of the State Statistics Committee, in the second quarter of 2016, real GDP grew by 1.4% yoy, compared to a decline of 14.7% yoy in the second quarter of 2015.  The major sources of GDP growth were gross capital formation, with a growth rate of 17.6% yoy, and household consumption, with a 4.3% yoy growth rate. On the other hand, Ukrainian general government expenditures dropped by 2.4% yoy, and net foreign trade declined by 6.5% yoy.
  4. High-frequency data show that Ukraine’s economic activity has continued to improve.  Manufacturing output in August increased by 5.5% yoy, compared to a growth rate of 2.6% yoy during January-July 2016.   
  5. The recent revival of economic activity led to large increases in both fiscal budget revenues and expenditures in August. The significant growth of state budget revenues in August (67.9% mom; 20.3% yoy) was more than nine times higher than monthly growth of expenditures, leading to a UAH 7 bln surplus of the state budget in August.  Furthermore, local budgets were also executed with a surplus of UAH 4.6 bln in August. This expanded their total local budget surplus from the beginning of the year to UAH 31.6 bln. Consequently, the consolidated budget deficit for January-August was reduced to UAH 11.3 bln, which is one-half lower than a month ago. By the end of the year, the overall consolidated fiscal deficit (including the Pension Fund and Naftogaz) is likely to be about 4% of GDP.
  6. In August, consumer prices posted the third consecutive monthly decline, dropping by 0.3% mom, thanks to lower prices in food, wearing apparel, and footwear categories.  For the year 2016, inflation is likely to be 12%, going down to 10% in 2017.
  7. At the beginning of September, the UAH/USD exchange rate continued to depreciate because of appreciation of dollar in the international foreign exchange market. Subsequently, the exchange rate remained relatively stable at high dollar prices for some time as speculators and exporters tried to maximize their profits. However, following the decision of the IMF to provide the next tranche to Ukraine, the exchange rate appreciated to around UAH/USD 25.8.
  8. In August 2016, the overall balance of payments was in balance, maintaining the level of international reserves at USD 14.3 bln. This balance was caused by a surplus in the financial account of USD 417 mln, and despite a deficit in the current account of USD 414 mln.

    To read the whole report please open the PDF file in attachment 
    LINK: Ukr-Monthly_Ec_Report_September 2016-Final1.pdf