OECD Report

Economic News

22 Jul 2010
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An Organisation for Economic Cooperation and Development (OECD) report praised Ukraine's remarkable progress in recent years, but was critical of its dependence on imported goods and reluctance to reduce red tape. However, the reception from the international press has been somewhat negative, focussing on the distance the economy still has to go rather than the sound base built even during a time of political turmoil.

The report from the OECD, which represents economically developed nations, came out in early September. While Ukraine is not a member of the 30-nation bloc, it is seen as a strategically important potential member.

The document lauded Ukraine's economic performance of 7.4% growth between 2000 and 2006 as "impressive" after the transition recession of the 1990s, when Ukraine had declared independence from the Soviet Union. Noting that "Ukraine continues to grow strongly", it went on to say that "the achievement of macroeconomic stabilisation together with the structural policies of the late 1990s did much to lay the basis for current growth".

The OECD acknowledged Ukraine's economic growth and reform, saying that changes have benefited the many, not only the few, commenting that "both unemployment and poverty have fallen sharply since 1999".

There was praise for governments' fiscal discipline since 1999, for having kept deficits in check and debts low, boosting overall confidence in the country's creditworthiness and viability as a participator in the European economy.

The OECD also noted "evident progress in simplifying the corporate and personal income taxes and reducing tax exemptions".

The report featured many positives, describing Ukraine's potential and outlining prospective roadmaps to unleashing this promise. Highlighting "sustainable growth", it urged Ukraine to "remove the barriers" to competition in its market.

However, Ukraine comes under criticism for lagging behind its eastern and western neighbours, saying that the lack of reform is deterring foreign investors. The organisation stated that "the scope for catch-up remains considerable" and expressed concerns that the industries that had led to impressive growth after 1999, "have exhausted, or will soon exhaust, their potential".

"One of the major disappointments of Ukraine's performance to date has been its relative failure to attract foreign direct investment," the report noted, adding that Poland's Foreign Direct Investment (FDI) amounts to 16% of Gross Domestic Product (GDP). In comparison, Ukraine's FDI inflows were equal to 9.4% of GDP in 2006.

Comments such as these, portraying recommendations as a warning to the country that all is not well, have garnered negative headlines and coverage. The recommendations particularly focused on what Ukraine can do to "make strong growth more sustainable", especially the reduction of tariff barriers and red tape.

The report also warned of an over-reliance on energy-intensive industries, a reminder of the country's dependence on Russia - which has been an inconsistent supplier of late. The OECD warned that gas price increases could erode the competitiveness of Ukrainian goods. Manufacturers in the country currently thrive on relatively cheap imported energy from Russia. Were supplies to falter, or prices rise, Ukraine could be left vulnerable.

Finally, inflation is also a concern, and the shift to greater exchange rate flexibility is seen as a first step in the right direction for the central bank to establish an inflation-targeting regime.

Despite the negative reception over the OECD's assessment review, the report showed above all that Ukraine's development over the past seven years has set it on track to fulfilling its potential.

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