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COMMENTARY

The impact of COVID-19 on the EU’s neighbourhood: Ukraine






Ukraine / COMMENTARY
Amanda Paul , Vasyl Filipchuk

Date: 31/03/2020
In this special series of commentaries, experts look at how countries neighbouring the EU are dealing with the coronavirus crisis, the challenges they face and the scope for EU support. 


After just having managed to shake off its economic ills, Ukraine risks facing more economic and political turmoil in the wake of COVID-19. Europe should be prepared to step in and play a leading role in providing international assistance to Ukraine, to avert any form of instability.


Ukraine is no stranger to crisis. However, the COVID-19 crisis comes at a time when the country is already faced with several serious challenges, including a fragile economy and ongoing conflict in the Donbas. Averting a new economic crisis and preventing the collapse of Ukraine’s under-resourced healthcare system will require strong leadership and a well-coordinated and properly communicated response at the national and local levels. Although the EU is also battling COVID-19, it must not forget its neighbours. Instability in Ukraine would have repercussions for the EU, too.

An overwhelming challenge

The first COVID-19 case in Ukraine was reported on 3 March, carried reportedly by migrant workers returning from Italy. As of 30 March, there are 549 confirmed cases and 13 fatalities.[1] The numbers are expected to sharply rise once testing, which was limited so far, increases: 250,000 express test kits arrived from China on 24 March. President Volodymyr Zelenskiy has also promised to make available a further 10 million tests.

The initial response of Ukraine’ new government – which took office only three weeks ago following an unexpected reshuffle – was rather chaotic. However, today the steps taken mirror those adopted by many other countries. These include banning public gatherings, closing schools, forbidding cross-border and inter-regional transport and asking citizens to remain at home from 12 March until 24 April. On 24 March, a month-long, nationwide state of emergency was introduced. While Zelenskiy holds a daily media briefing to update citizens on the efforts to fight the virus, an additional country-wide information campaign should be implemented as disinformation from both internal and external sources is widespread.

Ukraine’s parliament has introduced several key measures to fight the spread of COVID-19 and support Ukrainian citizens and businesses. These include simplifying the procedure of the prompt procurement of goods and services required to combat COVID-19: importing medication duty- and VAT-free and introducing salary increases of up to 200% for doctors working directly on the virus. To protect the rights of internally displaced persons (IDPs) – some 1,500,000 people following the conflict in Donbas –, it is now forbidden to cancel their registration certificates for the quarantine period and an additional 30 days after its abolition, as well as to freeze their state aid during the quarantine.

An inadequate healthcare system

Ukraine’s under-resourced and only partially reformed healthcare system is not equipped to deal with such a crisis. Zelenskiy has asked medical facilities to suspend non-urgent operations to prepare for the treating of COVID-19 patients. Shortages of crucial equipment, such as ventilators and critical protection items including masks and gloves, have already led to some doctors becoming infected with the virus. There are also deficiencies in the communication between hospitals, local authorities and the Ministry of Health. While the Cabinet of Ministers has allocated ₴100 million (€3 million) for critical protection items and Ukrainian businesses have purchased equipment for hospitals, it is doubtful whether this will be sufficient to cope with a massive influx of new cases or not.

Economic implications

With the Ukrainian economy having only just returned to growth following its 2014-15 economic meltdown, this crisis is bad news. Ukraine has an export-oriented economy and, with the stagnation of international markets, demand for Ukrainian exports, not least agricultural products and metals, has plummeted.

Besides the impact on different business sectors, there are other serious risks, including those related to currency devaluation. For one, while a lower exchange rate and slightly weakened hryvnia may provide short-term benefits for the economy and intensify exports, the expected global downturn may limit the extent to which the Ukrainian economy will be able to benefit from a weaker currency. For another, if the exchange rate drops by more than 15%, almost all Ukrainian banks will need additional capital. Furthermore, a significant amount of national debt payments (i.e. ₴400 billion, or almost €13 billion) – some 40% of the national budget – is planned for 2020. In the event of expanding deficit, there will be an urgent need for the government to start a dialogue on debt restructuring with the International Monetary Fund and private owners of national bonds.

The National Bank of Ukraine’s intervention to stabilise the economic situation, including spending more than $1 billion to support the hryvnia, was important. The Cabinet of Ministers has also announced that it will create a stabilisation fund of some ₴200 billion (€30 million) to support its citizens and businesses. Despite these efforts, Ukraine will continue to need assistance from international donors.

Given the present uncertainty in Ukraine, estimates of the economic impact of COVID-19 differ greatly. According to multiple recent estimations, Ukraine’s 2020 GDP may decline from the earlier predicted growth of 3.2% to 0.5% and could even fall to -4%.[2] The by now very optimistic scenario of low growth assumes that the lockdown will not be prolonged beyond 24 April and that the Ukrainian economy will regain some of its positions during the second half of 2020. Meanwhile, a prolongation of the lockdown and the widely anticipated global economic recession may result in a very negative scenario; one similar to the economic crises of 2008-2009 and 2014-2015, with the GDP plummeting by as much as 20%.[3]

Currently, it is too early to anticipate which way the situation will go. Moreover, there are several other factors which are difficult to predict, such as how the population will spend its ‘savings’, how the shadow economy will behave, and how economic actors will react to breaks in the global production and supply chains.

Other challenges

The virus could also impact Ukraine’s geopolitical environment negatively. With EU member states focused on pressing domestic priorities, Ukraine may face difficulties in maintaining international support for issues relating to the resolution of the conflict in the Donbas. Moreover, with many EU member states set to face serious damage to their economies, maintaining EU-wide unity on the sanctions imposed on Russia in response to its aggression against Ukraine may become more difficult. Always on the lookout for an opportunity to exploit EU divisions and weaknesses, the Kremlin has already tried to demonstrate its goodwill to help Europe by sending planes of medical equipment to Italy, a country already sceptical about the sanctions.

Ukraine’s ability to maintain an effective and coordinated policy within the country – between the central government and local authorities – will also be put to the test. However, the crisis may inadvertently help the nation overcome its divides and converge around a common understanding of national interests, such as investing in healthcare and critical infrastructure.

What should the EU do?

While EU leaders are focused on their respective domestic impacts of the coronavirus, it would be a strategic error to ignore the developments in its neighbourhood. Ukraine is going to require international assistance to overcome the COVID-19 crisis. The EU should be playing a leading role in this, by providing funds for the production of test kits and other crucial medical equipment, allowing Ukraine access to the strategic rescEU stockpile of crucial medical equipment (e.g. ventilators), offering support to small and medium-sized enterprises, and giving humanitarian and financial assistance for the potential humanitarian disaster in the occupied territories. The EU should also provide Ukraine with a new extraordinary financial assistance package to help the most affected areas of the economy once the crisis is over.

Through such initiatives, the EU should send a message of solidarity to Ukraine at a time when the country faces multiple implications of the global pandemic. The EU cannot afford to ignore the impact of COVID-19 beyond its borders, as instability in Ukraine can quickly negatively impact the EU.

 

Amanda Paul is Senior Policy Analyst of the Europe in the World programme. Vasyl Filipchuk is Senior Advisor to the International Centre for Policy Studies in Kyiv.


The support the European Policy Centre receives for its ongoing operations, or specifically for its publications, does not constitute an endorsement of their contents, which reflect the views of the authors only. Supporters and partners cannot be held responsible for any use that may be made of the information contained therein.




[1] Kyiv Post, “Homepage: COVID-19 in numbers” (accessed 31 March 2020).
[2] Åslund, Anders, “Ukraine urgently needs a new IMF agreement”, Atlantic Council, 22 March 2020.
[3] Garton Ash, Timothy, “Timothy Ash: Ukraine’s choices ahead of big vote in parliament”, Kyiv Post, 27 March 2020.



Photo credits:
Sergei SUPINSKY / AFP
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