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Abstract
To date, prices of gas and other energy used by households in Ukraine have been
generously subsidized by the Government. However, suppressed energy prices lead to
excessive use of gas and an inefficient level of investment into energy savings. In addition,
Ukraine’s dependence on imported gas contributes to trade imbalances and growing
pressure on the devaluation of the national currency. Thus, the issue of raising gas prices
remains critical for the population of Ukraine. In particular, this step was also envisaged in an
ambitious reform agenda announced in mid-2010 aimed at restoring stable and high
economic growth. However, this policy may have an unprecedented impact on the welfare
of population. This paper presents the main findings from the simulation of gas price shocks,
provides an overview of social support programs in Ukraine and analyses their efficiency.
Based on the analyses, the paper draws two major conclusions. First, increases in gas prices
result in welfare losses in all household categories, with a more profound impact on urban
households. Second, the current social welfare programs are not very efficient in targeting
the poorest households. Reform of the social welfare system is thus required to ensure a
safety net for poor households in times of gas price hikes. In order to assist national decisionmakers
in solving these issues the paper presents general policy recommendations.