Ukrainian media review on February 16, 2015

Russia-backed militants do not comply with the ceasefire regime in the Debaltseve area and near the village of Shyrokyne. Thousands of Ukrainian troops are being surrounded in Debaltseve in what may become one of the biggest defeats for the nation’s army since the battle of Illovaisk in August and September.

World leaders call ceasefire in Ukraine “fragile.” Despite the “fragile” pause, the German foreign minister calls for the withdrawal of heavy weapons from the conflict zone.

WAR. SETTLEMENT OF THE CRISIS IN UKRAINE.

A group of Ukrainian servicemen have been taken prisoner by Kremlin-backed militants in the besieged city of Debaltseve in Donetsk Oblast, Ukraine’s Defense Ministry said on Feb. 17.  The report comes as thousands of Ukrainian troops are being surrounded in Debaltseve in what may become one of the biggest defeats for the nation’s army since the battle of Illovaisk in August and September. That massacre of hundreds of Ukrainian troops forced President Petro Poroshenko into the first Minsk peace agreements in September, the therms of which were routinely violated by the Russian side.  The Defense Ministry said soldiers of the General Staff’s 101st Security Guard Brigade and the 8th Special Forces Regiment had been ambushed by Russian proxies.

EU new individual sanction list was published and came into force.This new set of sanctions related to the situation Ukraine and includes 19 individuals and 9 entities. Among those, who were banned from entering into the EU and whose assets in Europe should be freezed, are five representatives of the Russian Federation. Among them, First Deputy Defense Minister Arkadiy Bakhin, Deputy Defense Minister Anatoly Antonov, Member of the Parliament of Russia (State Duma) Iosif Kobzon, as well as the of the Parliament of Russia Ethnic Affairs, First Deputy Chairman Valery Rashkin.

ECONOMY

The topic of Ukrainian debt restructuring became a matter of public discussion. Ukrainian Ministry of Finance expects the forthcoming negotiations with creditors on improving the sustainability of public debt to be completed until the next revision of the credit program of the International Monetary Fund (IMF) in June.  Minister of Finance, Natalia Yaresko reported that during cosultations different ways to reduce the cost of debt service will be discussed, including the capital issues exchange for new ones. Ministry of Finance intends to begin negotiations with the holders of sovereign debt after the approval of the new IMF program by its board of directors.  Finance Minister Natalie Jaresko hopes to shave $15 billion off the debt amount in the next four years through restructuring talks with creditors.  At the same time the government has no answer to the question about the actions of the authorities in case if one of the creditors demands immediate payment of the debt.  The finance minister evaded the question about possible Ukrainian actions in case Russian refusal to restructure Eurobond with total value of $3 billion maturing in December 2015.

Meanwhile, the government of Ukraine has worsened the GDP forecast in 2015 to 5.5% (the state budget adopted in late December 2015 was based on the conservative scenario of the situation, providing for the decline in GDP by 4.3%).  On February 14, Prime Minister Yatsenyuk reported that the inflation forecast for 2015 deteriorated to 26% from 13.1% recorded in state budget in December. The government forecasts the economic growth by 0.5% in 2016.

GOVERNMENT

The Cabinet of Ministers of Ukraine have submitted the draft amendments to the state budget for 2015 to the Parliament on on Monday, February 16. Minister of Finance Natalia Yaresko stated that the adoption of these amendments is a prerequisite for the new increased funding program of the International Monetary Fund (IMF).  The minister said that due to inflation and devaluation, the income are expected to increase up to 22.5 billion USD or 3.9%, to 599 billion USD, while spending will increase up to 35.7 billion UAH or 5.7%, to 664 billion USD.  According to Yaresko, the growth of costs associated with the need to increase the amount of direct subsidies for gas and utility services for the population, increasing number of internally displaced persons to 1 million people, and an increase in the cost of debt service due to the devaluation of the hryvnia. Ms. Yaresko said that spending increase would entail budget deficit increase, and the government agreed on its increase from 3.7% of GDP to 4.1% of GDP (76.3 billion USD). In order to reform “Naftogazof Ukraine” The Cabinet of Ministers intends to reduce by 5.8%subsidies provided for this enterprise in the state budget for 2015. With regard to additional revenues, the government is initiated the introduction of an additional temporary 5-10% duty on imports.

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