Ukraine Country Risk Outlook

31 May 2019

Ukraine Country Risk Outlook Short-term political instability has increased following the election of political novice Volodymyr Zelensky as president. However, Russia is likely to pressure its proxies in eastern Ukraine to reduce the intensity of violence in Donetsk and Luhansk oblasts in the six-month outlook. This will form part of a broader effort to build a co-operative working relationship with Zelensky and strengthen his domestic standing.

Security Environment

After winning a landslide election in April 2019, Zelensky will push for parliamentary elections to capitalise on his political momentum. Zelensky state that his top priority as president will be to broker a ceasefire with pro-Russian forces and end the conflict in eastern Ukraine.

The conflict has so far claimed 10,500 lives and caused material damage of more than US$350 billion.

Zelensky is likely to be more pragmatic than his predecessor Petro Poroshenko in managing relations with Russia.

Apart from stating his desire to hold direct talks with Russia to restore peace in the conflict zone, Zelensky plans to implement a decree ordering reform and transparency in defence spending.

Continued fighting poses significant risks to Ukraine’s critical national infrastructure and industrial assets. Shelling has often been indiscriminate and caused extensive damage to civilian infrastructure and commercial assets in the heavily industrialised cities of Donetsk, Luhansk, Mariupol, Makiyivka and Horlivka in the Donbass region.

Ukraine Country Risk OutlookTerrorism risks remain high owing to the steady flow of illicit arms into eastern Ukraine.

Improvised explosive device attacks against government buildings, police forces and railway infrastructure are most likely to target Kiev and major cities in the south and east of the country.

Cyber-terrorism attacks on Ukraine’s critical national infrastructure are also likely following the 2017 NotPetya cyber-attacks that disrupted Ukrainian ministries, banks and metro systems.

Trading Environment

Zelensky will advocate for continued engagement with the International Monetary Fund (IMF) in a bid to push forward pension and energy reforms to stimulate the economy.

In the near-term the business environment in Ukraine will continue to suffer from the political instability generated by Russia’s annexation of Crimea in 2014 and the on-going conflict in eastern Ukraine. Real GDP growth is therefore expected to slow to 2.4% in 2019 and 2.5% in 2020, after expanding by 3.2% in 2018.

The mining and transportation sectors will continue to be most heavily impacted by the conflict in Ukraine’s industrial heartland – the Donbass region. Regulatory sanctions on Ukrainian exports worth upwards of US$500 million also restrict significant trade across the border into Russia.

Growth in the industrial sector will therefore be affected by weak domestic and external demand and will only expand by an average of 1.0% in 2019-20.

Ukraine’s hard currency reserves have risen over the standard three-month import cover threshold as of April 2019, but sustaining an adequate reserve buffer will remain challenging.

The reserves were built up by abandoning the hryvnia’s quasi–peg to the US dollar, thus relieving pressure on the central bank to support the hryvina, which has lost more than 70% of its external value against the US dollar since 2015.

The 14 month US$3.9 billion Stand-By Arrangement (SBA) agreed with the International Monetary Fund (IMF) in December 2018 is critical for financing Ukraine’s current account and budget deficit.

However, continued access to funds will be dependent on the new government increasing the size and pace of structural economic reform. As a political novice, there is a significant risk that Zelensky will be unable to dismantle the current oligarchical structures that inhibit the growth potential of the economy.

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Investment Environment

Pricing outlook website UkraineElected on an overwhelming mandate, Zelensky has an opportunity to drive reform that will kick-start the economy and has already stated his intention of doing so.

Zelensky plans an anti-corruption drive and judicial reform that will increase regulatory transparency and open up Ukrainian markets to competition. In March 2019, the National Bank of Ukraine (NBU) and Clearstream – an international central securities depository (ICSD) – signed a membership agreement.

Clearstream will allow foreign investors uninhibited access to Ukraine’s local government bonds, thereby increasing liquidity and diversity in domestic high-yield securities.

Foreign ownership of Ukrainian government bonds currently stands at only 1.3% of total outstanding debt.

Clearstream’s involvement will bring greater foreign investment opportunity into Ukraine and stimulate economic growth.

Ukraine SpiderChart Signup WRR

5 Key Takeaways

  • Political novice Volodymyr Zelensky was inaugurated as President in May 2019, immediately calling a snap parliamentary election
  • Zelensky’s elections offer the prospect of a de-escalation of tensions with Russia
  • Material damage caused by the eastern Ukrainian conflict exceeds US$350 billon
  • Ukraine breached the three month import cover threshold in April 2019
  • Real GDP growth is expected to grow slowly to 2.4% in 2019 and 2.5% in 2020.

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Bolivia, Pakistan, Turkey and Maldives all of which have been the subject of recent enquiries from our client base.



  • Eleanor SmithEleanor Smith

    Eleanor Smith is a Senior Political Risk Analyst within Marsh JLT Specialty’s Credit Specialties team. At Marsh JLT Specialty, Eleanor analyses developments in political risks, and advises clients on their effect in a range of sectors. Eleanor is also responsible for delivery of World Risk Review, JLT’s country risk ratings platform, to clients and prospects.

    Eleanor has a first-class degree in History with Spanish from UCL, and a Masters in International Public Policy from the same institution. With experience in a range of sectors, including diplomatic missions and not-for-profit, Eleanor can help clients understand their risk exposure.

    If you would like to talk about any of the issues raised in this article, please contact Eleanor Smith, Senior Political Risk Analyst on
    +44 (0)121 626 7837.

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