Question

After the collapse of the Soviet Union, what were the main economic difficulties faced by Ukraine between 1991 and 1994? How to understand these economic difficulties.

Answer 1

In 1991 after the collapse of Soviet Union Ukraine became an independent state. There were high expectations that it would become a full member of the European and Euro-Atlantic communities; and a wealthy free market democracy in the near future. However Ukraine failed to stand as per the expectations. In 1991–1996 the economy annually contracted between 9.7 and 22.7 percent. There was a slow fall continued throughout the decade; and official GDP decline nearly half from 1990 to 1994. There was a huge budget deficit nearly 14.4 percent of GDP. The surrogate moneys, foreign currencies and barter prevailed.

The instability of politics created obstacles in building functional administrative institutions such as tax authorities. Consequently a shadow economy swelled and compensated for an unknown share of the collapse in economy. There was high level of corruption. When it narrowed the tax base; an attempt to raise revenue from tax meant a heavy tax on what could be taxed; thus forced numerous companies and people into the shadow economy. There was high of the shadow economy, increase in corruption, difficulty in raising revenue, and political hurdle to control subsidies and other expenditures