Centre for Economic Strategy / Центр економічної стратегії

💸 Ukraine receives its first $1 billion from frozen Russian assets This is part of a planned $20 billion that the United States is prepared to allocate by leveraging frozen Russian assets under the G7 initiative. 🌍 Through the ERA program, Ukraine will fully cover its budget deficit in 2025 and partially in 2026. These funds will be instrumental in supporting both civilian and military needs.

Fluffy hugs and holiday licks 🐕 Woof, everybody! It's me, Cessie and from all CES team i wish you happy holidays 💗 May this year bring you joy, warmth, comfort and, most importantly, victory to our country 🙌 May the export corridor thrive, inflation slow down, the hryvnia remain stable, and the energy sector stay resilient!

⚡️ Ukraine is winning the economic war against Russia 一 The Economist Here’s a quick dive into the key points from the article: ▪️ Ukrainian economy outpaces Russia's: For the first time since 2022, Ukraine's economic performance is surpassing Russia’s in some areas. The National Bank of Ukraine (NBU) projects 4% GDP growth in 2024 and 4.3% in 2025. The hryvnia remains stable, and the key policy rate of 13.5% is near its 30-month low. By contrast, Russia faces soaring interest rates of up to 23% to stabilize the rouble, fragile banks, and GDP growth forecasted at just 0.5-1.5% for 2025. ▪️ Ukraine's economic phases during the full-scale war: 1️⃣ Chaos & survival: Martial law, blocked ports, strict capital controls, and inflation led to a one-third drop in GDP. 2️⃣ Stabilization: Initiatives like the grain deal, IMF support, and business relocations to safer regions marked this phase. 3️⃣ Current stage: Facing shortages of people, money, and electricity. “Now even industries deemed critical can protect only half of their workers from the front line,” remarks CES Director Hlib Vyshlinsky. The challenges are compounded by migration patterns, with many women abroad and men either on the front lines or unable to return to work. 👉 Earlier this month, we analyzed macroeconomic forecasts from seven NGOs and compared them with the government’s projections: https://lnkd.in/d657bqdG 

✔️ How to Attract German Investment to Ukraine? In June 2024, Berlin hosted the Ukraine Recovery Conference, and just recently, Ukrainian and German businesses came together for the sixth Business Forum. 👁️🗨️ Join us together with Berlin Economics, AHK Ukraine - German-Ukrainian Chamber of Industry and Commerce and UkraineInvest - Ukraine Investment Promotion Office this Thursday at 11:00 AM (Kyiv time) as we discuss the forum’s key outcomes and explore practical strategies for attracting German investment to drive Ukraine's economic growth. Invited speakers: Reiner Perau, Managing Director, German-Ukrainian Chamber of Commerce and Industry Björn Vogler, Senior Consultant, German Economic Team Robert Kirchner, Deputy Team Leader, German Economic Team Тарас Качка, Deputy Minister of Economy of Ukraine Maria Repko, Deputy Director, Centre for Economic Strategy Viktoria Volovenko, Head of Analytics, UkraineInvest 📎 Regisrtation is avaliable by the link: https://lnkd.in/dhUuNyiD

💡 What’s New with the 2025 Budget? Key Takeaways from Minister of Finance of Ukraine Sergii Marchenko Yesterday, we held an event about economic review, with a special topic on budget-2025. 🔹 External Financing: The baseline $40 billion need for 2025 is fully secured through the Fund, IMF, and ERA programmes. Even under a negative scenario, additional funding can be sourced — particularly through ERA loans repaid via revenues from frozen mineral assets. 🔹 Reducing Domestic Borrowing Dependence: While domestic borrowing in 2025 will match or slightly exceed 2024 levels, it will largely focus on loan extensions. ‘Domestic borrowing isn’t generating new resources—it’s covering debt servicing. Our goal for 2025 is to stabilise borrowing without increasing domestic debt,’ Marchenko shared. 🔹 State Employee Salaries Frozen: Salaries for state employees will remain at 2024 levels, while pensions are set for indexing in 2025. ‘We’ve allocated an extra UAH 12 billion for education between budget readings, prioritising sectors most impacted by the war,’ he noted. 🔹 Stronger Revenue Performance: Tax and customs services are outperforming expectations, a sign of resilience in trade and domestic consumption. 🔹 Improved Fiscal Stability: The budget is becoming more predictable with fewer mid-year adjustments. This year saw only one amendment, compared to three in 2023 and even more in 2022. To watch the recording of event follow the link: https://lnkd.in/d8dYmcGm

We summarize the main forecasts for 2025 from non-governmental economists from our event. 📈 GDP: ▪️ In 2024, government and independent experts forecast real GDP growth of 3-4%. The nominal GDP is expected to reach $189 billion. ▪️ In 2025, GDP is forecast to grow by 3.5%, and the hryvnia is expected to devalue by 8%, raising nominal GDP to $200 billion. 🛒 Inflation: ▪️ In 2024, non-governmental organizations forecast inflation at 10.6%. ▪️ In 2025, it is expected to drop to 7.1%. We wrote more about inflation forecasts here. 💸 Exchange rate: ▪️ On average, forecasters expect the exchange rate to reach UAH 43.7/$ in 2025 (rising to 45.7 by the end of the year). The government forecasts 一 45 UAH on average for the year. The budget deficit 2025 will be reduced to $38 billion, compared to $44 billion in 2024. There have been positive dynamics in reducing the budget deficit: in 2023, it was 27% of GDP, and this year it was 23%. By 2025, non-governmental experts predict that it will fall to 19% of GDP. The deficit will be covered through a combination of grants, partner loans, Russian asset proceeds under the ERA program, funding from the Ukraine Facility program, and the issuance of domestic government bonds. International reserves are forecast to remain stable at around $40 billion. 🪖 Assumptions about war: ▪️ The baseline scenario of all organizations is that the war will last until the end of 2025. ▪️ Dragon Capital's optimistic scenario assumes a ceasefire in the first quarter of 2025. «Since mid-October, prices for Ukrainian assets have been rising, and financial markets have begun to take into account the scenario of the end or suspension of the hot phase of the war», 一 adds Olena Bilan, Chief Economist at Dragon Capital and member of the CES Supervisory Board. The organizations' forecasts are based on the assumption that the grain corridor will work and that international support for Ukraine will continue. 🔗 Listen to more details and download the presentation here: https://lnkd.in/d657bqdG This event is one of the activities under the Good Governance Fund Project “Economic Hub: Strengthening Macroeconomic Stability Through Robust Public Financial Management”, which is funded by UK International Development. The project delivery partners are Abt Global and Centre for Economic Strategy / Центр економічної стратегії.

The state budget, adapting to the shocks of the war, is trying to be as "normal" as possible in the current circumstances. One important decision was the first tax increase since the beginning of the full-scale invasion. 📍 What are the risks of budget execution in 2025? And will we be able to fulfil all our commitments? Join our event together with Berlin Economics on December 12 at 3 PM. In addition to discussing the budget, CES experts will traditionally review the main changes in the country's economy in November. 📎 The registration is available by the link: https://lnkd.in/dejHTmNa

Does Ukraine really need a Ministry of Ukrainian Unity? 👇 Another topic that caught our attention last week was President Zelenskyy's proposal to establish a Ministry of Ukrainian Unity, as outlined in his resilience plan during his address to the Verkhovna Rada. The concept of such a ministry, which has been discussed for some time, aims to encourage Ukrainians living abroad to return home. However, our Senior Economist, Daria Mykhailyshyna, views this initiative as questionable. The ministry's potential functions remain unclear and may overlap with those of existing institutions. 💭 Rather than creating new bodies, it is crucial to focus on enhancing the efficiency of current institutions to avoid dispersing resources. The idea of dual citizenship, however, carries notable potential benefits: ▪️ It could help Ukrainians living abroad maintain a connection to their homeland and make it easier for them to return if they choose to;  ▪️It could attract immigrants, particularly members of the diaspora who wish to live in Ukraine but are hesitant to give up their other citizenships. That said, these advantages must be carefully balanced against potential security risks, especially concerning individuals holding citizenship from an aggressor state, such as Russia. 👨👩👧👦 Since 2022, we at the Centre for Economic Strategy has been actively researching the conditions and sentiments of Ukrainian refugees. Our work includes three waves of refugee surveys and analysis of the economic impact of their potential non-return on Ukraine’s economy. You can explore these findings on our website: https://lnkd.in/dDzUhR7D

What does the 2025 state budget look like? What will undoubtedly impact all forecasts is the budget law for the upcoming year, signed by the President yesterday. 👇 Below, we break down the key indicators and planned changes: ▪️ Economic growth for 2025 is projected at 2.7%. This is a conservative forecast, as international organizations anticipate higher growth, with the National Bank predicting 4.3%.  ▪️ Defence and security will account for more than half of the expenditures—56% of the total budget.  ▪️ The need for external financing will decrease to $38.4 billion (down from $42.5 billion in 2024).  ▪️ Social protection spending will amount to 432 billion UAH (18% of total revenue), which is 33 billion UAH less than in 2024. This reduction is due to the freezing of social standards, including the minimum wage and subsistence level.  ▪️ Pension expenditures will decrease by 12%, along with reduced allocations for housing subsidies. However, funding for veterans, social workers, and healthcare will increase.  ▪️ 64% of personal income tax (PIT) will remain in local budgets. Additionally, frontline communities have been exempted from reverse subsidies, allowing them to retain their revenues for local needs instead of transferring them to the state budget. 💲 Changes to the Tax Code (signed yesterday after a 1.5-month delay): ▪️ From 1 December, the military tax will increase from 1.5% to 5%, and private individual entrepreneurs (also knows as FOPs) will also be subject to this tax.  ▪️ Banks and financial companies will pay 50% corporate profit tax.  ▪️ Advance tax rates will rise for fuel stations and currency exchange offices.

We traditionally host an event focused on the macroeconomic forecast. This year, we’ll be presenting projections for 2025 from seven Ukrainian and international analytical teams and comparing them with the government’s outlook. We’ll then dive into what’s in store for prices, the hryvnia exchange rate, and the economy overall in the year ahead. A full list of speakers and the event schedule is available in the event description. ⏰ When: 3 December at 5:00 PM on Zoom.  Registration: https://lnkd.in/geJVediM