Business Update – March 23: Ukraine starts to tally economic cost of COVID-19

Ukraine’s GDP will decline by 4% if quarantine lasts up to three months and by 9% if it lasts longer. That’s according to Tomas Fiala, head of the Dragon Capital investment bank, as cited by Interfax-Ukraine. “If quarantine in the main countries, in the EU, the United States and Ukraine, lasts for no more than three months and not until the second half of the year, if the number of infected people declines before the end of May and the economy can work from the third quarter, then the reduction in global GDP will be 1-2%. This is more than it was in 2009. In Ukraine, GDP will decline by 4%,” Fiala said

The state budget deficit of Ukraine could grow from 2.1% to 7% of GDP this year, the deputy head of the presidential office has said, as reported by Ukrainian language media. “We take into account both the economic decline and the additional costs that the state will incur in the fight against coronavirus… If by the beginning of the year we expected a budget deficit of approximately 2% of GDP, today we expect around 7%,” Yulia Kovaliv said during an online discussion organized by the European Business Association on Monday, March 23.

Ukrainian officials have estimated it will cost about $4 billion to fight the COVID-19 disease, and said they need more IMF funding to protect citizens against the virus. “Only for the fight against coronavirus we already need an additional $3.5-4 billion,” said Kovaliv. The IMF has said it’s ready to mobilize its entire $1 trillion lending capacity to fight the novel coronavirus worldwide – and it has $50 billion in flexible and rapid emergency funds for developing nations like Ukraine, with up to $10 billion available at 0% interest.

Kovaliv also told the EBA about a new package of bills to support business during the fight against COVID-19 . “First of all, it will concern changes to the Labor Code and labor relations in order to legalize both the remote place of work and the individual work schedule – all those issues that we receive online from businesses,” Kovaliv explained. Some compensation for lost pay and flexible regulations for sick leave and time off work are still being considered, she said.

Unprotected freelancers in Ukraine are waiting for the laws they need to formalize their relationship with employers. Ungoverned by Ukrainian law, many jobs provide no social guarantees – no sick leave, no days off, no fixed hours, and no constant pay — while allowing the firms to potentially exploit their workforce.

Some legal experts have said that laws passed so far, which place a moratorium on some taxes and social contributions, and were passed by the Rada on March 17, may have a limited impact on businesses and not go far enough in protecting workers and the economy.

Nontheless, the government estimates that the package of laws adopted last week to support businesses will cost the national budget UAH 10 billion. “The state will be ready to take part of these expenses on the wage fund and share these expenses,” she said. The Ministry of Finance is also developing amendments to the national budget for 2020, which should find cost reductions of $1.7 billion, Kovaliv said.

International financial institutions are ready to aid Ukraine amid the economic fallout from the COVID-19 crisis, President Volodymyr Zelensky has said. The International Monetary Fund, the World Bank, and the European Bank for Reconstruction and Development are all prepared to chip in, the president said in a statement. “Yesterday I had a conversation with IMF Managing Director Kristalina Georgieva. Our international financial partners, including the IMF, the World Bank, the EBRD assured us of their readiness to support and help Ukraine,” he wrote on social media, echoing a simmilar statement made by the head of the IMF.

The European Investment Bank is also in talks with the government and relevant ministries to see where it can best deploy capital to fight coronavirus downturn. The bank says it’s paying close attention to transport. “As one of the main financial partners of Ukraine we want to set out a coordinated response to counter the socio-economic impact of the COVID-19 outbreak. We are prepared to quickly adapt or increase existing loans to respond to the new needs caused by this crisis,” the EIB told the Kyiv Post.

Ukraine has banned its citizens from flying abroad as tourists from March 24. “From tomorrow, only Boryspil International Airport will work in Ukraine. Passengers will also be banned from flying out as tourists starting on noon on March 24,” Infrastructure Minister Vladyslav Krykliy posted on his Facebook page.

And Ukrainian airlines have scheduled last-call flights for foreigners to go home. The two companies still operating in Ukraine are Ukraine International Airlines (UIA) and Sky Up, and the safest way to know about the departures is by consulting the website of the main Kyiv Boryspil International Airport.

The Holos (Voice) political party has said it’s against imposing a state of emergency in Ukraine over COVID-19. “There are enough government tools for responding to the coronavirus danger today. The parliament has agreed with the need to impose quarantine and delegated all necessary powers to the government, and now they need to be sensibly employed,” the party said in a March 23 statement.

The Eurocar automobile factory increased its net profit by 17% in 2019. The Uzhhorod plant in Western Ukraine, by the border with Hungary, plans to use the profits to pay off losses from previous years and is looking to attract investors in order to build electric cars. The modern factory, connected by rail to the Czech Republic, produces Skoda cars, and used to make VolksWagen and Audi vehicles too before cutbacks after Ukraine lost lucrative sales markets in Crimea and eastern Ukraine.