Ukraine Unrest: Global Economic Effects

The political and economic future of Ukraine remains uncertain despite a rapidly changing political situation. This uncertainty will undoubtedly affect economic conditions for those in Ukraine but also other countries supporting Ukraine. Officials from both the United States and the European Union have stated that they are willing to provide financial assistance to Ukraine. How will the future of Ukraine be shaped by this financial assistance and growing international relationship?

One of the major sectors of the Ukrainian economy needing reform is energy. Right now, the Ukrainian government subsidizes the energy industry to keep prices low which puts additional burden on its stretched government finances. These subsidies also eliminate business incentives to use and produce energy more efficiently. However, agreements negotiated with the European Union suggest that Ukraine may cut these energy subsidies and move towards market prices for energy. This would incentivize efficiency in domestic Ukrainian businesses and even provide opportunities for increased international business activity in the energy sector of the economy.

Ukraine’s current account deficit from trade in goods and services is another area of concern for the country’s economic future. Last year’s deficit was 8% of GDP which represents money Ukraine must borrow from abroad to stay financially viable. A deficit of this size is more than manageable if international financial markets have confidence in Ukraine’s economic outlook. With help from the European Union, the United States, and the International Monetary Fund (IMF), Ukraine may garner this confidence. Assistance from these countries also allows further economic integration in Ukraine with the economies of the European Union. Do you think international aid and increased global business activity is enough to get Ukraine back on track? Let us know what you think by leaving a comment below!