Ukraine’s currency, the hryvnia, has slumped to a fresh all-time low, in the face of the fraying ceasefire in the east of the country.
The prospect of all-out war returning to eastern Ukraine has hit the economy and helped drive the hryvnia down more than 18 percent in the last week.
That is when the central bank stopped supporting it as the bank was running out of foreign currency reserves.
Ukraine is near bankruptcy, dependent on international loans, and deeply in debt for natural gas to Russia.
The hryvnia has lost nearly half its value against the dollar so far this year and the falling currency makes it extremely difficult to proceed with an International Monetary Fund bailout.
The next loan tranche under a $17-billion-dollar International Monetary Fund Programme bailout programme is likely to be delayed until the end of 2014 or next year.
Some experts say that will not be enough. Ukraine is “already at most people’s worst case for the year. The IMF programme now needs totally recalibrating,” Standard Bank analyst Tim Ash said.
Ukrainians’ faith in the banking system has sunk as the hryvnia declined. As of Sept. 21, around a third of deposits had been withdrawn from bank accounts this year, amounting to around 100 billion hryvnia ($6.8 billion).
This outflow has not abated, said Oleksandr Valchyshen of InvestCapital Ukraine: “Bank recapitalisation must be more than cosmetic … depositors have to be assured that the bank is going to work without problems.”
Efforts to support the hryvnia during the crisis and payments for Russian natural gas pushed foreign reserves to $12.6 billion as of October, their lowest since 2005.
Ukraine still has to pay Russian gas debts of $1.6 billion by the end of the year as well as over $700 million a month for new supplies.