The Ukrainian economy has plunged amidst the war in the east and the hugely negative spillover effects. With the painful adjustment to new realities continuing, we don't expect any material improvement in the coming months. On the other hand, the worst seems to have been fully flushed out of the dark; we now have clarity over what issues need to be addressed and how to address them. Real GDP is highly unlikely to recover before 4Q15 at the earliest, once the base effect vanishes in full. Ukraine will struggle to service its debt obligations in 2015. Although the funds committed by IFIs and foreign governments for 2015 are sufficient for Ukraine to repay sovereign external debt, more is needed to cover the C/A gap and maintain stability in the FX market. We estimate Ukraine will need to raise USD 21 bln in 2015; about USD 15 bln seem to already be secured. The budget will remain an issue – due to completely unrealistic revenue targets and masked expenditures, the actual fiscal gap may exceed 10% of GDP. Printing money seems to be the only source to cover a gap of that size.

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