Which way will Ukraine go?

Political events in Ukraine have been volatile and uncertain recently which has been mirrored with renewed concern about the country’s economic future.

On the one hand, Ukraine has a £9bn lending programme agreed with Russia and has already received £1.8bn of this. On the other, there is a rising tide in Ukraine towards the West which would inevitably mean talking to Europe, the USA and the International Monetary Fund (IMF).

The country’s finance minister has stated that £21bn will be needed over the next 2 years. If Ukraine aligns with the West, it is unlikely that Russia will lend any more of the remaining £7.2bn agreed. There again, would the West (and specifically the IMF) step in to fill the breach? Previous agreements between Ukraine and the IMF required the country to implement certain policies which it failed to do. Not a good track record then, and the IMF would doubtless impose a few attached strings to any arrangement.

So the question remains as to who will provide the financial backing that Ukraine needs to avoid an international debt default? The credit rating agency Standard and Poor’s (S&P)  has already downgraded Ukraine’s credit status reflecting its judgement that the country’s financial viability is questionable.

That said, the financial ramifications are one thing, but it will probably be the politicians and their agendas which will prevail.