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Ukraine's economy shrinks by 7.5% in 2014

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The Ukrainian national flag waves in front of the country’s central bank building.

Head of Ukraine’s central bank says the country’s economy has shrunk by 7.5 percent as inflation soared in 2014, making it the worst year in over half a century.

Valeria Gontareva said on Tuesday that the annual inflation rate hit 21 percent by the end of last month and the country’s currency was devalued by about 50 percent.

“Our country has not lived through such a difficult year since at least World War II,” said Gontareva.

The central bank governor added that Ukraine’s inflation would not fall to the 13-percent target next year, but is expected to stand at 18 percent due to the government’s decision to revoke subsidies and increase tariffs on utility services.

The Kiev government had earlier predicted that the country’s economy would contract by up to five additional percentage points next year.

In addition, Ukraine’s reserves more than halved this year, dipping to less than USD 10 billion as the Western-backed Kiev government tried to prop up the country’s currency and fund its military operations against pro-Russia forces in the country’s eastern regions.

Gontareva said another USD 8.6 billion of the bank’s reserves were used to pay off its natural gas debts to Russia and strike new agreements with European Union member states.

On Monday, Ukrainian lawmakers approved an austerity law that would make tax legislation easier and impose additional duties on imports in a bid to raise revenue to help tackle the country’s economic crisis.

The approval paves the way for Kiev to receive a new tranche of a USD 17-billion loan package from international creditors and the International Monetary Fund (IMF). Ukraine has so far received two tranches of the financial aid, worth a total of USD 4.6 billion.


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