The World Bank has raised its forecast for Ukraine's economic growth this year to 4.5 percent from 4.0 percent, the bank said on Tuesday citing faster-then-expected expansion in the first quarter. However, it said growth remained volatile and would be more subdued in the rest of this year. It also raised the 2011 inflation forecast to 11.4 percent from 10.7 percent.
"Under current policy conditions, we project growth to be between 4.5-5.0 percent in 2012-2013 - well below Ukraine's potential - as commercial bank lending to the economy recovers, but with a continued widening of the current account deficit," the bank said in a statement. Ukraine should be able to plug the current account gap using money from the International Monetary Fund, the bank said.
The Fund halted disbursements to Ukraine this year after the government missed deadlines on key reforms such as raising the retirement age for women and hiking utilities fees. But the government is now trying to catch up with the agreed reform programme and hopes to restart co-operation with the IMF soon.
"On the other hand, further delays of these reforms and pre-parliamentary election spending in 2011 and into 2012 would seriously compromise the sustainability of public finances," the World Bank said. "This, together with ill-advised export restrictions may lead to widening current account deficits, complicating the balance of payments outlook for 2012." Ukraine used quotas to limit grain exports in the 2010/2011 season and plans to replace them with export duties in the next season.
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