Economy of Ukraine


Ukraine has many of the components of a majorEuropeaneconomy - rich farmlands, a well-developed industrial base, highly trainedlabour, and a good education system. At present, however, the economy remains in poor condition. While Ukraine registered positiveeconomic growthbeginning in 2000, this came on the heels of eight straight years of sharp economic decline. As a result, the standard of living for most citizens has declined more than 50% since the early 1990s, leading to a relatively highpovertyrate. The macroeconomy is stable, and thehyperinflationof the 1990s has subsided[citation needed]. Ukraine'scurrency, thehryvnia, was introduced in September 1996[citation needed], and has remained fairly stable. The economy has continued to grow since 2000. GDP in 2000 showed strong export-based growth of 6% - the first growth since independence - and industrial production grew 12.9%. The economy continued to expand in 2001 as the real GDP rose 9% and industrial output grew by over 14%. Growth of 4.6% in 2002[citation needed]was more moderate, in part a reflection of faltering growth in the developed world. In general, growth has been undergirded by strong domestic demand, low inflation, and solid consumer and investor confidence. Growth was 9.3% in 2003 and 12% in 2004.[citation needed]

Ukraine is relatively rich innatural resources, particularly inmineraldeposits. Althoughoilandnatural gasreserves in the country are largely exhausted, it has other important energy sources, such ascoal,hydroelectricityandnuclear fuelraw materials.[citation needed]

Ukraine has a major ferrous metal industry, producingcast iron,steeland pipes.[citation needed]As of 2005, Ukraine was the world'seighth largest steel producer.[citation needed]Another important branch is the country'schemical industrywhich includes the production ofcoke, mineralfertilizersandsulfuric acid. Manufactured goods include metallurgical equipment,diesel locomotives,tractors, andautomobiles. The country possesses a massive high-tech industrial base, including much of the formerUSSR'selectronics,arms industryandspace program. However, these fields are state-owned and economically underdeveloped.

Ukraine is a major producer ofgrain,sugar,meatandmilkproducts.[citation needed]

Since the late 1990s[citation needed], the government has pledged to reduce the number of government agencies, streamline the regulatory process, create a legal environment to encourage entrepreneurs, and enact a comprehensivetaxoverhaul. Outside institutions — particularly theIMF[citation needed]— have encouraged Ukraine to quicken the pace and scope of reforms and have threatened to withdraw financial support. But reforms in some politically sensitive areas of structural reform and land privatizations are still lagging.[citation needed]

Ukraine encourages foreign trade and investment. The Parliament of Ukraine has approved[citation needed]a foreign investment law allowing Westerners to purchase businesses and property, to repatriate revenue and profits, and to receive compensation if the property is nationalized by a future government. However, complex laws and regulations, poorcorporate governance, weak enforcement of contract law by courts, andcorruptionall continue to stymie direct large-scale foreign investment in Ukraine. While there is a functioningstock market, the lack of protection for shareholders' rights severely restricts portfolio investment activities. Total foreign direct investment in Ukraine is approximately $17.4billion(17.4 G$) as of April 2006[citation needed].

Most Ukrainian trade is conducted withRussiaand theEuropean Union.[citation needed]An overcrowded world steel market[citation needed]threatens prospects for Ukraine's principal exports of non-agricultural goods such as ferrous metals and other steel products. Although exports ofmachineryand machine tools are on the rise, it is not clear if the rate of increase is large enough to make up for probable declines in steel exports, which today account for 46% of the country's overall exports.[citation needed]

Ukraine's western neighbours (mainlySlovaksandHungarians) are known to purchase products and presents that are cheaper in Ukraine than in their home countries.[12]


Ukraine imports 90% of its oil and most of its natural gas. Russia ranks as Ukraine's principal supplier of oil, and Russian firms now own and/or operate the majority of Ukraine's refining capacity. Natural gas imports come from Russia - which delivers its own gas, as well as the gas fromTurkmenistan. Instead, Ukraine is transporting Russian gas to the EU through its well-developed gas pipelines system, being Europe's vitally important connection. The country's dependence on Russian gas supplies dramatically affects its economics and foreign policy, especially after therecent major gas dispute.

However, Ukraine is independent in itselectricitysupply, moreover, exporting it to Russia and other countries of Eastern Europe. This is achieved through a wide use ofnuclear powerandhydroelectricity. The recent energy strategy intends gradual decreasing of gas- and oil-based generation in favor of nuclear power, as well asenergy savingmeasures, shortening of industrial gas consuming. Reform of the still inefficient and opaque energy sector is a major objective of theInternational Monetary Fund(IMF) andWorld Bankprograms with Ukraine.

Ukraine is a partner country of theEUINOGATEenergy programme, which has four key topics: enhancingenergy security,convergenceof member stateenergy marketson the basis ofEU internal energy marketprinciples, supportingsustainable energydevelopment, and attractinginvestmentfor energy projects of common and regional interest.[13]

Financing from international institutions

In 1992, Ukraine became a member of theIMFand theWorld Bank. It is a member of theEuropean Bank for Reconstruction and Development.

In 2008 the country joinedWorld Trade Organization. Ukraine applied for WTO membership in 1993, but its accession process was stalled for 15 years. The IMF approved a $2.2 billionExtended Fund Facility(EFF) with Ukraine in September 1998. In July 1999, the 3-year program was increased to $2.6 billion. Ukraine's failure to meet monetary targets and/or structural reform commitments caused the EFF to either be suspended or disbursements delayed on several occasions. The last EFF disbursement was made in September 2001. Ukraine met most monetary targets for the EFF disbursement due in early 2002; however, the tranche was not disbursed due to the accumulation of a large amount ofVATrefund arrears to Ukrainian exporters which amounted to a hidden budget deficit. The EFF expired in September 2002, and the Ukrainian Government and IMF began discussions in October 2002 on the possibility and form of future programs.

A political crisis in the middle of 2006 was feared as a threat to economic and investment stability, however, despite the forecasts, the political situation has not scared investors. The GDP showed a good growth rate of 7% in 2007, compared to the previous year. Industrial output has increased. Car sales soared, while the banking sector has expanded, thanks to the arrival of European banks.

Environmental Issues

Ukraine is interested in cooperating on regional environmental issues. Conservation of natural resources is a stated high priority, although implementation suffers from a lack of financial resources. Ukraine established its first nature preserve,Askania-Nova, in 1921 and has programs to breedendangered species.

The country has significant environmental problems, especially those resulting from theChernobyl nuclear power plant disasterin 1986 and from industrial pollution. In accordance with its previously announced plans, Ukraine permanently closed theChernobyl Atomic Energy Stationin December 2000. In November 2001, Ukraine withdrew an application it had made to theEBRDfor funding to complete two new reactor units to compensate for the energy once produced by Chernobyl. Ukrainian concern over reform conditions attached to the loan - particularly tariff increases needed to ensure loan repayment—led theUkrainian governmentto withdraw the application on the day the EBRD Board was to have considered final approval. Work on the so-called "object shelter" to permanently entomb the reactor where the world's worst nuclear accident occurred has been slower than anticipated but continues. Design work as well as structural improvements to the "sarcophagus" erected by the Soviet Union are largely complete, and construction on the new shelter is scheduled to begin in 2004.

Ukraine also has established a Ministry of Environment and has introduced a pollution fee system that leviestaxeson air and water emissions and solidwaste disposal. The resulting revenues are channelled to environmental protection activities, but enforcement of this pollution fee system is lax.

Miscellaneous data

Household income or consumption by percentage share:

  • lowest 10%:3.4% (2006)[14]
  • highest 10%:25.7% (2006)[14]

Industrial production growth rate


  • production:192.1 billion kWh (2006)
  • consumption:181.9 billion kWh (2006)
  • export:10.07 billion kWh (2005)
  • import:20 billion kWh (2006)

Electricity - production by source:

  • fossil fuel:48.6%
  • hydro:7.9%
  • nuclear:43.5%
  • other:0% (2001)


  • production:90,400 barrel/day (2006)
  • consumption:284,600 barrel/day (2006)
  • exports:214,600 barrel/day (2004)
  • imports:469,600 barrel/day (2004)
  • proved reserves:395 million barrel (1 January 2006 est.)

Natural gas:

  • production:20.85 billion cubic m (2006 est.)
  • consumption:73.94 billion cubic m (2006 est.)
  • exports:4 billion cubic m (2006 est.)
  • imports:57.09 billion cubic m (2006 est.)
  • proved reserves:1.075 trillion cubic m (1 January 2006 est.)

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