Ukraine: encouraging potential, but challenges remain

Grant Webster reflects on a recent trip to Ukraine – a frontier market we really like. This is a story of new beginnings, with a few caveats.

27 Feb 2020

4 minutes

Grant Webster reflects on a recent trip to Ukraine – a frontier market we really like. This is a story of new beginnings, with a few caveats.

The quick view

  • There continue to be significant structural reforms throughout the country, with strong leadership at the central bank and ministry of finance.
  • The clean, vibrant, and busy capital city is home to a new generation of politicians aiming to drive the country forward.
  • Economic fundamentals are robust, with key metrics at healthy levels, and the country’s budget in surplus.
  • But the oligarchs continue to have influence, often creating sharp factional divisions that breed an air of fragility in the country’s politics.
  • These vested interests may yet prove a brake to the country unlocking its full potential, so staying abreast of developments is crucial.

Grant Webster reflects on a recent trip to Ukraine – one of the frontier markets we really like. This is a story of new beginnings, albeit against a familiar and somewhat edgy backdrop.

Real energy to drive the country forward

“The stars in the night sky are always the same”, said one member of a Western government delegation. What they meant was that while much changes in Ukraine, the same people at the top – the oligarchs – are still running the place.

On the face of it there continue to be major improvements in the country, with significant and impactful structural reforms a big factor in our decision to start investing in the country’s bonds some years ago.

This research trip confirmed our view that both the central bank and ministry of finance are highly credible and competent. We were also impressed with all the technocrats, policy makers and advisors we met. There is a real energy to push forward and turn the country around, evidence by the proliferation of EU flags across the capital and elsewhere.

Economy is in good shape

Kiev itself looks impressive: clean, extremely busy, shops full, businesses doing well. There is a new generation of young politicians, although they are inexperienced and sometimes naïve. One very experienced MP from the Voice party even remarked that these young MPs are “breaking the system, but I am enjoying it”.

Ukraine’s economic fundamentals are in rude health, with inflation set to fall below 3% in the first quarter (before rising back to 5% by the end of 2020), debt/GDP now down to below 50%, the budget in surplus and the National Bank of Ukraine managing to accumulate US$7 billion in reserves last year, thanks to strong portfolio inflows.

This all remains supportive for our positive view on – and our strategies’ exposure to – the country, especially for our local bond and GDP warrant positions.

Oligarchs lurk in the shadows

But be under no illusion; Ukraine’s politics remains fragile. The oligarchs remain strong, and the local courts can still produce questionable rulings. President Zelensky will continue to face pressure over the coming years from both outside and within his own party, The Servant of the People. Within the party there is a decent contingent of MPs who are loyal to Igor Kolomoisky, the local oligarch and former owner of Privaat Bank which had to be nationalised. From the outside, the party of ex-President Poroshenko has turned against the land reforms that hold the key to unlocking the country’s full economic potential. This will make passing future reforms difficult, especially those aimed at improving the judiciary and reducing the power of monopolies.

All told, Ukraine continues to undergo a remarkable recovery and possibly one of the most successful IMF programmes yet. Time will tell if the country can sustain this by overcoming its vested interests and powerful oligarchs.



Emerging market: These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.

The value of investments, and any income generated from them, can fall as well as rise.

Authored by

Grant Webster

Portfolio Manager, Emerging Market Fixed Income

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