Ukraine's economic 'meltdown' just got worse

Evidence of Russian involvement?
Ex-Lithuanian PM: West must step up
Ukraine commander: We count on US support
What is Ukraine's economic outlook?

Ukraine's currency plunged to new record lows on Monday morning, as a failed peace plan and continued violence piled more pressure on a country that has seen a year of political and economic turmoil.

The country's central bank said the official rate for the hryvnia had dropped 7 percent on Monday, to close to 30 against the U.S. dollar, according to Reuters.

It came as the bank also announced currency controls for the country's importers to try to limit the hryvnia's fall. Ukrainian sovereign bonds also fell to record lows during the morning session.

"Let's not beat around the bush - Ukraine is facing economic/financial meltdown," Timothy Ash, head of emerging markets at Standard Bank, said in a morning note.

Over the weekend, the country marked the anniversary of the protests that sparked a change of power in Kiev. Tensions on the streets of the capital in 2014 soon turned into military conflicts on the eastern border, however, with Moscow accused of aiding pro-Kremlin rebels in the region. Moscow continues to deny the involvement of Russian troops in the conflict.

'No more illusions'

Former Lithuanian Prime Minister Andrius Kubilius told CNBC Monday that it's the West's responsibility to halt any Russian advances.

"There are only two choices: either to give enough modern weaponry to the Ukrainian army or to use economic sanctions…which should convince Putin to stop his aggression immediately," he said.

Kubilius also called for a quick response if there were clear violations of the negotiated ceasefire.

"Because if it will not hold…I hope there will be no more illusions…that Mr. Putin will keep his word. We need from Mr. Putin not words, we need actions, and actions cannot be achieved only by speaking with him. We need actions from the western community."

An automated teller machine operated by OAO Sberbank in Kiev, Ukraine.
Vincent Mundy | Bloomberg | Getty Images

The U.S. dollar has appreciated 200 percent against the Ukrainian currency in the twelve months that have passed since the start of the conflict, and the economy has crumbled. Figures last week revealed a more-than 15 percent fall in gross domestic product (GDP) year-on-year in the fourth quarter of 2014.

A peace deal with Russia signed earlier this month had sparked some hope of an end to the violence. However, conflict in the key battleground of Debaltseve, in the Donbass region, has continued.

Two soldiers have died in eastern Ukraine in the last 24 hours, according to Reuters, which quoted the Ukraine military, and a bomb blast in the city of Kharkiv on Sunday raised fears that the violence could be spreading outside of the conflict zones in Donbass.

The International Monetary Fund (IMF) has introduced a new Extended Fund Facility for Ukraine, in addition to its existing aid package for the country. Ukraine has also received financial help from the U.S., the European Union and the World Bank.

Why Ukraine can reinvigorate its economy: CEO

Nonetheless, billionaire investor George Soros is one notable voice calling on European officials to urgently boost their efforts to support the Ukrainian economy. Standard Bank's Ash said in a note Monday that history would judge Western leaders "very poorly" for how they have helped Ukraine.

Tomas Fiala, CEO at Dragon Capital - a leading investment bank in Ukraine - told CNBC Monday that the aid had been very slow, and enabled Russian President Vladimir Putin to destabilize the east of the country.

However, he said he remained optimistic on the Ukrainian economy and believes an end to the fighting would quickly turn around Ukraine's fortunes.

He explained that a sizeable chunk of Ukraine's GDP - including its industrial output – was currently locked up in the conflict zones and that the country now has a more balanced current account deficit given the recent fall in imports.

- CNBC's Kalyeena Makortoff and Steve Sedgwick contributed to this article.