KIEV: The World Bank sharply cut its outlook for war-torn Ukraine on Wednesday, forecasting its economy will shrink by a massive 7.5 per cent this year due to the conflict with pro-Russian separatists.

The international lender lowered its 2015 economic outlook from its previous estimate of a 2.3pc contraction.

The new forecast is even grimmer than estimates by the Ukrainian government and IMF of a 5.5pc decline in gross domestic product.

Ukraine’s economic output had already fallen by 6.8pc in 2014.

After two years of recession, Ukraine has been brought close to economic and financial collapse by the past year of conflict in its industrial east.

The government in Kiev is fighting pro-Russian separatists who have taken control of parts of two key eastern regions.

“The conflict in the east has become the main driving force behind the fall,” the World Bank said in its report, presented in Kiev on Wednesday.

“Ukraine has considerable potential, but its implementation is possible only if the situation in the east is stabilised and the banking system recovers.”

The government has passed new laws to start curbing corruption and clean up Ukrainian banks and allies are pushing it to deepen those reforms.

Ukrainian officials pleaded at a conference with international financiers and officials on Tuesday for more investment to boost the economy.

Qimiao Fan, the World Bank’s director for Ukraine, warned on Wednesday that “the top concern of investors is that they do not feel secure when they invest in this country because of corruption.”

CONFLICT, EXPORTS, DEBT: For the economy, “external factors not directly under the government’s control still have a substantial influence,” said World Bank expert Anastasia Golovach at a news conference presenting Wednesday’s forecast.

“First of all there is the conflict, which intensified over the first few months of the year. But there is also fairly weak external demand and quite low prices of raw materials, of which Ukraine is an exporter.”

She also pointed to the challenge of lowering Ukraine’s debt.

The country’s total public debt was $70bn in 2014, according to the government.

The International Monetary Fund has agreed to a bailout deal for Ukraine worth $17.5bn (15.9bn euros) over four years.

It estimates that the country needs to raise $40bn overall to avoid financial collapse — including some $15bn in savings by restructuring its debt.

Ukrainians are suffering from soaring inflation and the weakening of their hryvnia currency, which has fallen by two thirds against the dollar since early 2014.

The conflict has killed more than 6,100 people over the past year and driven more than a million from their homes, according to the United Nations.

Published in Dawn, April 30th, 2015

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