The Ukrainian economy is in a very difficult situation. Reserves for December decreased by 24% to $7.5 billion (minimum since 2004) - it was necessary to help Naftogaz so that it would pay Russia $1.65 billion for imported fuel (plus $378 million in advances). Reserves do not even cover two months of imports. Probably, in the coming months, Ukraine will have to import even coal - its supplies have now decreased by 2.5 times compared to the pre-crisis level (70% of coal was mined in the Donetsk and Luhansk regions). The country cannot immediately reduce its consumption: 40% of electricity is produced from coal. Ukraine is provided with fuel for nuclear power plants (they produce 45% of electricity) for this year.

GDP is shrinking (minus 7.5% last year), and the decline will continue in 2015. The hryvnia fell by 41% against the dollar last year. Inflation reached its highest level in a decade and a half: 24.9%. In December, price growth accelerated from 1.9 to 3%. In the next couple of months, the annual price index will reach 30%, WSJ quotes Dmitry Petrov from Nomura.

The servicing of the national debt is under threat. Yesterday, the yield on Ukrainian dollar bonds maturing in the summer of 2017 rose to 34.1% (Bloomberg data). Russia has the right at any time to demand the $3 billion loan received by Yanukovych for slowing down European integration: the condition of not exceeding 60% of GDP in debt has been violated. The country clearly needs external financial assistance. According to Poroshenko, the conflict in the east of the country costs Ukraine about $10 million a day, and the required external assistance for 2015-2016 should reach $13-15 billion on top of the $17 billion that the country agreed on with the IMF (they should be extended).

So far, creditors are in no hurry to help. The European Commission promised Ukraine an additional $2 billion in early January. But approval of this loan could take months. The IMF is also allocating funds with difficulty (another $4 billion is in question): the loans are conditioned on reforms, and things are not going well with them yet. The IMF's second requirement is to reduce the budget deficit.

In an article published in this issue (p. 07), billionaire and philanthropist George Soros calls on European authorities to provide large-scale aid to Ukraine in exchange for radical reforms. This plan is hardly realistic: solving the country's financial problems through foreign aid will deprive politicians of the incentive to take the necessary actions. In a favorable situation, neither the population nor the government will be willing to significantly reduce the level of state withdrawals from the economy, which exceeds 50% of GDP. And if this is not done, Ukraine will not transition to rapid economic growth. Another thing is that radical reforms are hardly possible during a war, even a slow-moving one. The chances that Ukraine will succeed in this are not very high yet.

From the editors: Kyiv zugzwang