FACTBOX - Economic Problems Facing Next Ukrainian President

On Sunday, Ukraine held its runoff presidential election. According to the country's Central Election Commission (CEC), candidate Volodymyr Zelenskiy is currently leading the race with 73.21 percent of the votes, while incumbent President Petro Poroshenko has secured 24.46 percent of the votes with 99 percent of the ballots counted

MOSCOW (UrduPoint News / Sputnik - 22nd April, 2019) On Sunday, Ukraine held its runoff presidential election. According to the country's Central Election Commission (CEC), candidate Volodymyr Zelenskiy is currently leading the race with 73.21 percent of the votes, while incumbent President Petro Poroshenko has secured 24.46 percent of the votes with 99 percent of the ballots counted.

Below are some of the economic problems that the elected Ukrainian president will have to face after his inauguration in early June.

According to experts, Ukraine's debt crisis is one of the country's major problems that the new Ukrainian president will have to face.

By May-June, Kiev needs to pay off at least $4 billion of debt. In total, Ukraine's sovereign debt payments for 2019 are expected to reach $17 billion. Meanwhile, in 2019, the National Bank of Ukraine reported a slowdown in economic growth at 2.5 percent, after hitting a record of 3.3 percent growth in 2018. In addition, according to the Ukrainian Finance Ministry, the state budget deficit grew by a factor of 8.5 in the first two months of 2019 year-on-year.

In February 2019, Ukrainian Prime Minister Volodymyr Groysman said during the "Svoboda Slova" [Freedom of Speech] program aired by the Ukrainian ICTV channel that almost a quarter of the country's budgetary savings for 2019 would be used toward repaying its multibillion Dollar debt load.

In 2014, Ukraine's external debt amounted to $37.5 billion. By 2018, the figure had increased by $10 billion to $47.5 billion.

International experts have previously noted the obvious problems with Ukraine's capacity to pay back loans. In mid-March 2019, the Fitch ratings agency affirmed Ukraine's Long-Term Foreign-Currency Issuer Default Rating (IDR) at the B level. According to the agency, Ukraine suffered a weak banking sector and showed a poor record of timely progress and overall completion of debt programs.

Economists have expressed concern that Kiev will not be able to cope with the debt burden unless it takes out new foreign loans. Alexander Martynenko, the head of the corporate research department at Investment Capital Ukraine (ICU), estimated that Kiev would need to borrow at least another $7 billion for the current year.

Another major pressing issue for the population of Ukraine is the increase in gas prices, which have been heavily subsidized by the government since the Soviet era. Last fall, the Ukrainian Cabinet of Ministers raised gas prices by over 20 percent in order fulfill debt obligations to the International Monetary Fund (IMF) and fulfill a new $3.9 billion stand-by aid agreement with the agency. The next price increase is scheduled for May and the Ukrainian government expressed its intentions to raise the gas prices to the market level by 2020.

However, leading up to the presidential election, the Cabinet removed fixed prices on gas and capped consumer prices for fuel at 8.55 hryvnia ($0.32) per cubic meter. Additionally, it told Ukrainian gas company Naftogaz to cut prices if a favorable market prevailed. By taking this step, the government wanted to reduce the gas prices for consumers and win favor with voters ahead of the election, but it is likely that the new president will have to resolve the issue of capped gas-prices with the IMF immediately after his inauguration in order to fulfill Ukraine's debt obligations.

Additionally, over the past year alone, it has become 70 percent more expensive for Ukrainians to cook staple dishes, as prices for the breadbasket have increased by 26 percent, prices for milk and meat products rose 12 percent, and prices for groceries rose 14 percent.

Alexey Doroshenko, director of the Ukrainian association of retail network suppliers, believes that product prices will only grow. In his opinion, the rise in prices is linked to the fact that Ukrainian authorities raised pensions, made one-time payments and monetized subsidies for utility tariffs right before the election.

According to data released by the Ukrainian State Statistics Service at the end of 2018, one-third of Ukrainians live below the poverty line.

One of the most difficult problems facing the next Ukrainian president, according to political analysts, is the conflict in Donbas that has been going on for five years now. Military expenses take up the lion's share of the state budget, as the authorities annually allocate 5 percent of the country's GDP for maintaining defense capabilities. In 2019, it is estimated that Ukraine will spend a record-high 209.5 billion hryvnia on military.

Since the start of the conflict in 2014, Kiev's authorities have adopted a series of restrictive measures against Moscow, haltering direct gas purchases, imposing sanctions against Russian banks and payment systems, blocking social networks and tv channels, and banning direct flights between the two countries. At the beginning of April 2019, Kiev once again expanded its sanctions against Russia.

On April 18, Russia responded to the actions of the Cabinet by extending the list of banned imports from Ukraine to include certain types of engineering products, light industry and metalworking, pipe products, paper and paperboard products, clothing and footwear.

According to Russian Prime Minister Dmitry Medvedev, the import of these products last year amounted to almost $250 million.

In addition, starting June 1, Russia will supply Ukraine with coal, gasoline and diesel fuel only on the basis of individual permits. The export of oil, ethane, butane, bitumen, ethylene, propylene from Russia to Ukraine is banned completely.

According the latest data of the Russian Federal Customs Service, Russian-Ukrainian trade in January-February 2019 amounted to $2 billion, showing a decrease of 2.1 percent year-on-year, including $1.29 billion in Russia's exports (an 1.9 percent increase) and $15.1 million in imports (a 8.5 percent decrease).

Viktor Medvedchuk, the chairman of the political council of the Ukrainian "Opposition Platform - For Life" party, told the Ukrainian broadcaster NewsOne that Kiev had been annually losing up to $20 billion in export earnings from restrictions on trade with Russia.

In addition, the current Russian-Ukrainian gas transit contract expires at the end of 2019. The leadership of Naftogaz has repeatedly expressed concern that Ukraine may lose the entire transit and consequentially lose the associated earnings from the enterprise.

According to Naftogaz' executive director, Yuriy Vitrenko, Russia will no longer need to use the Ukrainian route to deliver gas to the European Union once the Nord Stream 2 and the TurkStream gas pipelines are built and put into operation. According to Vitrenko, the most likely scenario is that there will be no more gas transit through Ukraine in 2020. The company's executive director also added that Ukraine would lose approximately 4 percent of its GDP if Russia halts the gas transit.

Speaking to Radio Sputnik, Oleg Soskin, the head of the department of international economics at the Kiev-based National academy of Management, said that the prospects of the Ukrainian gas transmission network were unenviable in either case.

According to him, after the Nord Stream 2 and the TurkStream are commissioned, the issue of gas transit to Europe through these gas pipelines will be resolved. Consequentially, only about 20 billion cubic meters of gas, more or less, will remain on transit through Ukraine's pipeline. As a result, the Ukrainian gas transmission system will not be used at the capacity for which it was built and will begin to fail quickly.

Russian authorities have repeatedly said that gas transit through Ukraine will continue if it proves economically beneficial. Medvedev presented a number of conditions for Ukraine to preserve the route including the settlement of relations between the concerned companies, favorable economic parameters and commercial terms in contracts, and a stable political environment.

However, as of now, Russian Energy Minister Alexander Novak has said that the gas transit tariff through Ukraine is much more expensive than through other routes.