Ukraine: President Zelensky reshuffles cabinet amid disappointing economic performance
March 9, 2020
On 4 March, President Volodymyr Zelensky replaced most of his cabinet, including the prime minister, with more established officials in an attempt to speed up the pace of reform and boost his falling approval ratings. Although it is not clear yet if the cabinet reshuffle will significantly affect economic policy, ongoing negotiations with the IMF for a three-year USD 5.5 billion loan could be at risk.
President Zelensky’s decision to oust some of the fresh faces initially appointed as part of his mandate to stamp down on endemic corruption largely reflected disappointing economic growth, as well as frustration about the slow pace of reform and the civil war which continues to rage in the eastern side of the country. At the outset of this year, industrial production sank for the fourth month running, the budget shortfall widened and mounting social problems have all hampered the President’s approval ratings. On top of that, political uncertainties and heightened global anxieties stemming from the global coronavirus outbreak have eroded investor sentiment ahead of hefty FX-denominated debt repayments due in 2020–2021.
In the cabinet reshuffle, only 6 of 17 ministers retained their positions, with 7 experienced bureaucrats appointed to head departments and 4 ministries temporarily left without a leader. Among the newly appointed ministers were Ilya Yemets, the new healthcare minister, and Maryna Lazebna, the new social policy minister, both of whom had previously served under former President Viktor Yanukovych. While speculation surrounding the new cabinet has unnerved investors, President Zelensky reaffirmed the commitment to push ahead with the reforms sought by the IMF, including liberalizing the agricultural sector and passing a law on banking insolvency that would cement the 2016 nationalization of PrivatBank—Ukraine’s biggest lender. Moreover, Fitch Ratings reaffirmed its B rating with a positive outlook for Ukraine on 7 March, as it remains confident that a deal with the IMF will be reached despite the cabinet reshuffle.
Looking ahead, the ability and willingness of the new cabinet to push forward with structural economic reforms are untested, while a faster-than-expected depreciation of the hryvnia, further political turmoil and fragile investor confidence all threaten financial stability ahead. That said, the likelihood of an accord with the IMF may have increased due to heightened risk of an economic slowdown amid the fallout from the coronavirus outbreak.