In 2011, according to analysts, ambiguous times await the Ukrainian economy. The tendency towards the restoration of the economic growth, macroeconomic stability and financial rehabilitation will be combined with serious challenges of global and domestic nature. The upward GDP trend is unlikely to lead to a rise in the population's real earnings because of the specific social policies of the Cabinet of Ministers. The country's excessive dependence on foreign sources of funding, unclear investment prospects, the deterioration of the economic freedom rankings, the high levels of corruption - all of this will deter the process of overcoming the crisis situation.
The government, the opposition and the analysts give somewhat different forecats about the economic situation in the current year. The government, represented by Prime Minister Mykola Azarov, paints a brighter future and reports on the final overcoming of the crisis and on the building of a solid foundation for quick development. The GDP growth rates are expected at around 4 – 4.6%. These figures are roughly the same as last year's ones, but they do not allow to speak about reaching the pre-crisis volumes of 2008. According to experts, a 7% acceleration is necessary for the Ukrainian economy to start working for the settlement of the accumulated socio-economic problems. Therefore, the statement of Azarov that "2011 must become a transitional year, from the point of view of the transition of our economy to a new innovation and investment level of development", is detached from the reality. 
The inflation index in 2011 has good chances not to exceed 10%. However, even if this is achieved, it will mainly be due to the use of the administrative methods of strict control over the prices. The planned 5% reduction of the budget deficit will help slow down the inflation. The risk factors for the financial system may be an increase in food prices worldwide, problems with getting tranches from the IMF and the general political instability. Already at the beginning of this year we see obvious signs of a new wave of growth of prices for goods and services. The planned increase in the utility rates will cause a significant price impact and hit the purchasing power of the Ukrainians. 
In the currency market, according to most analysts, severe shocks are not to be expected. The dollar rate is likely to remain at 7.90 - 8.00 UAH/USD. Optimists speak of a possible hryvnia strengthening by a couple of dozens of kopecks, while pessimists expect a fall of the same scale. As to the euro, there are risks of its gradual weakening because of problems in the eurozone economy. However, if the NBU under the pressure of the IMF is still going to liberalize the currency market, there may be financial squalls in the form of sudden jumps in rates. 
The banking sector will gradually increase the volumes of crediting legal entities and individuals. The share of bad debts will be reduced, which will help improve the financial balance structure. Also, in the absence of serious destabilizing factors, we can predict a gradual reduction in the interest rates on deposits and loans. However, the mortgage will remain a costly thing. This suggests that the real estate sphere will be in the phase of stagnation. 
What can interfere with the stability of the national currency and cause the failure of 2011 planned parameters budget is a catastrophic growth of the external debt. According to the last year's results, the amount of public debt of Ukraine in 2010 reached 123.4 bln. hryvnias. The total debt is now about 40% of GDP. In 2011, it must grow up to 45%. In addition, Ukraine has ranked second worldwide in terms of borrowings from the IMF. 
The pressure on Ukraine's balance of payments is also caused by the negative balance, which can rise this year to $ 4 billion. The culprit is lack of proportion between exports and imports. A certain compensation effect can be expected only through the involvement of regular loans from the IMF. 
There are no hopes either for a serious investment breakthrough in 2011. After a noticeable reduction in investment inflows in 2010 to nearly $ 4 billion, in 2011 they are unlikely to jump to $ 7 billion (according to the government forecast). A figure of $ 5 billion seems more realistic. The point is that foreign investors have not yet seen tangible results from the reforms declared by the government. On the contrary, there are alarming signals in the political and socio-economic spheres, absence of effective fight against corruption. 
Experts are sceptical about Ukraine's ability to improve the foreign balance structure through increased exports in 2011. According to the forecast of the National Bank, in 2011 exports will grow by 6,6%, imports - by 7,2%, while prices for export commodities will rise only by 5.5%. This is clearly insufficient to improve the negative trade balance.
The problem of the Ukrainian economy being focused on the export of raw materials created a situation where iron and steel companies became the locomotive of industry and the main earners for the state budget. Exports make up half of Ukrainian GDP. However, their structure is too outdated. Ukraine exports raw materials with low levels of processing (54% of total exports in 2010). This year the situation has not changed much. But Ukrainian steel mills are increasingly feeling pressure from competitors in world markets. And their obsolete products are less and less in demand. This makes the Ukrainian economy and the state budget 2011 particularly vulnerable to the situation on the world markets. Additional pressure will be caused by Ukraine's need to import products because the country's own agricultural capacity is not enough to completely meet the needs. 
Social standards in 2011 will show almost no growth. Judging from the parameters of the 2011 budget, they will not even allow to compensate for the inflation index. Minimum subsistence level will rise from 875 to 953 UAH, or only by 8.9%, minimum wages - from 922 to 1004 UAH, or by 8.9%, minimum hourly wages  - from 5.52 to 6.04 UAH/hr. It seems that the government decided to normalize the situation of the State Treasury and reduce the Pension Fund deficit by freezing the population's incomes. The boomerang effect of such action is the decline of purchasing power and the rise of tension in the society.
It is not for nothing that the opposition calls the current budget antisocial. It really provides cuts in social spending. For the first time in the last 8 years, the growth in social indexes is expected lower than that of economic ones. The budget includes the projected growth in real wages in 2011 at 4%. 
In the area of employment, there will be a gradual increase in the number of vacancies, along with significant job cuts, especially in governmental services. 
According to the preliminary estimates, industrial production growth will constitute up to 10%. This is a good figure, but it may be too optimistic. 
In general, the economic policy selected by Azarov's Government for 2011, is characterized by excessive caution and total savings (except for VIPs). Obviously, the authorities decided to err on the safer side from possible problems and chose a tactical version of the gradual improvement of the fiscal system. But this attempt will be undertaken mainly at the expense of ordinary citizens. 
Petro Herasymenko
(Translated from Ukrainian by Nadia Nykolaichuk)

In 2011, according to analysts, ambiguous times await the Ukrainian economy. The tendency towards the restoration of the economic growth, macroeconomic stability and financial rehabilitation will be combined with serious challenges of global and domestic nature. The upward GDP trend is unlikely to lead to a rise in the population's real earnings because of the specific social policies of the Cabinet of Ministers. The country's excessive dependence on foreign sources of funding, unclear investment prospects, the deterioration of the economic freedom rankings, the high levels of corruption - all of this will deter the process of overcoming the crisis situation.

The government, the opposition and the analysts give somewhat different forecats about the economic situation in the current year. The government, represented by Prime Minister Mykola Azarov, paints a brighter future and reports on the final overcoming of the crisis and on the building of a solid foundation for quick development. The GDP growth rates are expected at around 4 – 4.6%. These figures are roughly the same as last year's ones, but they do not allow to speak about reaching the pre-crisis volumes of 2008. According to experts, a 7% acceleration is necessary for the Ukrainian economy to start working for the settlement of the accumulated socio-economic problems. Therefore, the statement of Azarov that "2011 must become a transitional year, from the point of view of the transition of our economy to a new innovation and investment level of development", is detached from the reality. 

The inflation index in 2011 has good chances not to exceed 10%. However, even if this is achieved, it will mainly be due to the use of the administrative methods of strict control over the prices. The planned 5% reduction of the budget deficit will help slow down the inflation. The risk factors for the financial system may be an increase in food prices worldwide, problems with getting tranches from the IMF and the general political instability. Already at the beginning of this year we see obvious signs of a new wave of growth of prices for goods and services. The planned increase in the utility rates will cause a significant price impact and hit the purchasing power of the Ukrainians. 

In the currency market, according to most analysts, severe shocks are not to be expected. The dollar rate is likely to remain at 7.90 - 8.00 UAH/USD. Optimists speak of a possible hryvnia strengthening by a couple of dozens of kopecks, while pessimists expect a fall of the same scale. As to the euro, there are risks of its gradual weakening because of problems in the eurozone economy. However, if the NBU under the pressure of the IMF is still going to liberalize the currency market, there may be financial squalls in the form of sudden jumps in rates. 

The banking sector will gradually increase the volumes of crediting legal entities and individuals. The share of bad debts will be reduced, which will help improve the financial balance structure. Also, in the absence of serious destabilizing factors, we can predict a gradual reduction in the interest rates on deposits and loans. However, the mortgage will remain a costly thing. This suggests that the real estate sphere will be in the phase of stagnation. 

What can interfere with the stability of the national currency and cause the failure of 2011 planned parameters budget is a catastrophic growth of the external debt. According to the last year's results, the amount of public debt of Ukraine in 2010 reached 123.4 bln. hryvnias. The total debt is now about 40% of GDP. In 2011, it must grow up to 45%. In addition, Ukraine has ranked second worldwide in terms of borrowings from the IMF. 
The pressure on Ukraine's balance of payments is also caused by the negative balance, which can rise this year to $ 4 billion. The culprit is lack of proportion between exports and imports. A certain compensation effect can be expected only through the involvement of regular loans from the IMF. 

There are no hopes either for a serious investment breakthrough in 2011. After a noticeable reduction in investment inflows in 2010 to nearly $ 4 billion, in 2011 they are unlikely to jump to $ 7 billion (according to the government forecast). A figure of $ 5 billion seems more realistic. The point is that foreign investors have not yet seen tangible results from the reforms declared by the government. On the contrary, there are alarming signals in the political and socio-economic spheres, absence of effective fight against corruption. 

Experts are sceptical about Ukraine's ability to improve the foreign balance structure through increased exports in 2011. According to the forecast of the National Bank, in 2011 exports will grow by 6,6%, imports - by 7,2%, while prices for export commodities will rise only by 5.5%. This is clearly insufficient to improve the negative trade balance.

The problem of the Ukrainian economy being focused on the export of raw materials created a situation where iron and steel companies became the locomotive of industry and the main earners for the state budget. Exports make up half of Ukrainian GDP. However, their structure is too outdated. Ukraine exports raw materials with low levels of processing (54% of total exports in 2010). This year the situation has not changed much. But Ukrainian steel mills are increasingly feeling pressure from competitors in world markets. And their obsolete products are less and less in demand. This makes the Ukrainian economy and the state budget 2011 particularly vulnerable to the situation on the world markets. Additional pressure will be caused by Ukraine's need to import products because the country's own agricultural capacity cannot completely meet the needs. 

Social standards in 2011 will show almost no growth. Judging from the parameters of the 2011 budget, they will not even allow to compensate for the inflation index. Minimum subsistence level will rise from 875 to 953 UAH, or only by 8.9%, minimum wages - from 922 to 1004 UAH, or by 8.9%, minimum hourly wages  - from 5.52 to 6.04 UAH/hr. It seems that the government decided to normalize the situation of the State Treasury and reduce the Pension Fund deficit by freezing the population's incomes. The boomerang effect of such action is the decline of purchasing power and the rise of tension in the society.

It is not for nothing that the opposition calls the current budget antisocial. It really provides cuts in social spending. For the first time in the last 8 years, the growth in social indexes is expected to be lower than that of economic ones. The budget includes the projected growth in real wages in 2011 at 4%. 

In the area of employment, there will be a gradual increase in the number of vacancies, along with significant job cuts, especially in governmental services. 

According to the preliminary estimates, industrial production growth will constitute up to 10%. This is a good figure, but it may be too optimistic. 

In general, the economic policy selected by Azarov's Government for 2011, is characterized by excessive caution and total savings (except for VIPs). Obviously, the authorities decided to err on the safer side from possible problems and chose a tactical version of the gradual improvement of the fiscal system. But this attempt will be undertaken mainly at the expense of ordinary citizens. 

Petro Herasymenko

(Translated from Ukrainian by Nadia Nykolaichuk)