Ukraine: Pro-European won the parliamentary elections and gas deal with Russia

The parties of President Petro Poroshenko (Poroshenko’s Bloc) and Prime Minister Arseniy Yatsenyuk (People’s Front) won the majority of the votes. They are likely to form a coalition with one or two other parties being the Lviv Mayor’s party ‘Self-Help’ and Yulia Tymoshenko’s Fatherland party.

The Opposition Bloc, a vestige of Former President Yanukovych’s Regions party, is also represented in parliament while, for the first time since Ukraine’s independence in 1991, the communist party has no representation in parliament. No vote took place in Crimea and the part of the Donbass region occupied by the separatists. As a result, 27 seats will be left empty.

Turnover was particularly low, partly given the limited voting in the East of the country. On 31 October, Russia and Ukraine announced that a gas agreement was found. As a result, Russia has resumed gas supplies to Ukraine which had been cut since June 2014.

Despite the gas deal, geopolitical tensions remain high and hence sanctions on Russia are unlikely to soften soon. On Sunday 2 November pro-Russian separatists organised elections in eastern Ukraine that were not recognised by the European Union.

Impact on country risk

The recent elections give a strong mandate to the pro-European and pro-reforms parties that are expected to rapidly form a new government.

This should in principle enable the new government to adopt badly needed (sometimes unpopular) reforms. However, despite the willingness of the government to implement reforms, adoption and implementation of reforms is likely to be slow and difficult given the political and economic difficulties that the new government is facing. Indeed, the economy is in recession, the banking sector very weak, foreign exchange reserves and the hryvnia are under pressure, external debt and debt services are very high.

In this context, the country remains highly dependent on financial support from the IMF and the European Union. On the political side, geopolitical tensions remain elevated; ceasefire agreed on 5 September in Minsk is still broadly in place but fragile.

Expectations for change are very high but structural reforms are unlikely to be adopted soon given the vested interests, weak institutions and a possible return to continued political confrontations that characterised the government formed after the 2004 Orange revolution.

Country risk analyst, Pascaline della Faille, Credendo Group

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