Economic Results of 2022 and Prospects for 2023 for Ukraine

The past year was one of the most difficult for the Ukrainian economy. A couple of days ago, the Prime Minister of Ukraine, Denys Shmyhal, estimated Ukraine’s direct losses from Russian aggression at $700 billion. In addition, about 40% of the consolidated budget of Ukraine for the past year was spent on financing military needs.

According to Ukrainian and international experts, the fall in GDP amounted to approximately 30–35%. This is significantly lower than the initial forecasts, which predicted a 50–60% fall in GDP for Ukraine, but significantly higher than the fall in GDP in the COVID year, which amounted to 4% of GDP. In fact, as a result of the neighboring state's aggression, half of the Ukrainian economy was either destroyed or rendered unsustainable. The volume of Ukraine’s external debt has increased over the past year. In 2023, Ukraine has to pay UAH 120 billion of external debt, of which 97.5 are international obligations, and the rest are obligations of individuals and companies.

British economist Timothy Ash attributes the exaggerated nature of the initial forecasts for GDP decline to the fact that these forecasts were of a general nature and did not take into account the stable inflow of monthly international subsidies in the amount of USD 4 billion to finance the Ukrainian budget, not counting direct military assistance. In addition, the inflow of foreign currency to Ukraine has increased due to the growing number of compatriots forced to flee the war to the West.

According to the World Bank, 8 million people in Ukraine will be below the poverty line by the end of 2022. In other words, the poverty rate was 25% of the total population. If we take 30 million people as a starting point (not taking into account the 10 million Ukrainians who became refugees in the Western world or left Ukraine before the invasion), we see that about half of the Ukrainian population is below the poverty line. At the same time, the unemployment rate reached 30%.

The war tangibly hit the Ukrainians in the pocket. Companies were forced to cut their employees’ salaries by 30–50% at the start of the large-scale invasion. The situation had somewhat improved by the end of the year, but it was still far from perfect. In dollar terms, the reduction in wages for the majority of Ukrainians is even more dramatic.

Since the beginning of the war, the dollar’s cash rate has risen in price from 29 to over 40 hryvnias per dollar. According to experts, the rate may grow to 45 hryvnias per dollar by the end of the year, while the budget includes an average annual rate of 42–43 hryvnias per US dollar.

Along with the drop in population income, there was an increase in prices for food and other necessities for each family. The official inflation rate reached 30%. From January to December 2022, motor fuel in Ukraine has risen in price by 64.3%—to UAH 52 per liter of A-95. In comparison, a liter of the same brand of gasoline cost UAH 35 at the start of last year. The leader among the indicators of growth of consumer goods was chicken eggs, the cost of which rose by 80.7%.

Despite the destruction of the economy and blackouts, Ukrainian businesses paid UAH 80 billion more to the treasury than they did last year. Unfortunately, the issue of tax residency for Ukrainians living outside the country is still not settled. So far, this issue is being manually resolved through the achievement of interstate agreements. In many ways, the exchange rate difference between the official rate of the NBU and the market rate has led to a reorientation of business activity by many Ukrainian entrepreneurs to other jurisdictions.

Despite the difficulties in the economy, Ukraine is still a very promising country for investment. Everyone understands that as soon as we win, a construction boom will begin in the country. It all depends on how the world turns out. If the world follows a ‘Korean scenario’, according to NSDC Secretary Oleksii Danylov’s warning, we should not expect an influx of investors. If we manage to sign a full-fledged peace treaty after Ukraine’s victory, this will be a positive signal for investors from all over the world.

It is very important not to get confused in such a difficult time and work for the development of our own businesses while maintaining jobs. The most important thing is intellectual capital, which is irreplaceable. It takes many years to educate personnel, so it is important to do everything we can to preserve the backbone of our team while reorienting to foreign markets, which will help us survive the internal storm caused by Russian aggression.

The primary goal should be to ensure food exports, not only in the interests of the Ukrainian economy but also taking into account the importance of Ukrainian exports for the guaranteed supply of food on the global market. Repairing damaged granaries or building new ones is a necessary condition for this. In order to create alternatives to maritime exports, we need safe rail routes with adequate capacity.

We should also pay attention to the export of IT products. To do this, it is necessary to enhance the protection of intellectual property rights, reform the judicial system, and change the approach to tax administration. For this purpose, the Ukrainian government proposed a revolutionary measure at the end of last year, according to which individual entrepreneurs would be able to pay taxes automatically simply by opening a special bank account. This was meant to simplify the bureaucracy and abandon the accounting services. Such a measure is going to contribute to the virtual, if not physical, stay of our IT specialists in the Ukrainian economic model.

According to IMF forecasts, Ukraine will need at least USD 39–50 billion in the coming year to maintain the integrity of the economy and transition to GDP growth of 3%. The next year will show how adaptive the Ukrainian economy is to external challenges. The sooner the Ukrainian army drives the aggressor out of our territory, the sooner the Ukrainian economy will be able to recover from the shock caused by the war.

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