In 2021 Ukrainian economy was at the crossroads of a few trends.
Favorable external demand for commodities coupled with soaring prices led to a considerable increase of goods exports: up 37.5% in January – October 2021 compared to the same period of the previous year. Hard currency revenues reached $30.5 billion. This led to a reevaluation of hryvnia and contributed to trade balance and currency account stability. In 2021 the current account deficit will be just around 1% of GDP.

Though goods exports in 2021 are expected to increase by about $18 billion, the export per capita in Ukraine will be ~$1500. It is just 60% of the world average. It’s not enough to consider Ukraine a big beneficiary of globalization and the integration into global value chains. The share of Ukrainian goods exports in the world’s export in 2021 is estimated to be just 0.3%. As ~70% of goods export consists of raw materials, commodities and metals, the fluctuation in demand in 2022 could be a cold shower for Ukrainian exports.

Services booming

The service sector demonstrates a better and more promising perspective. In January – September 2021, IT sector exports reached $4.87 billion, which is 38.4% more than in the same period of the previous year. The adoption of the “Diya City” legislation (IT Park) at the end of the year is likely to accelerate the activities in this sector even more. The IT-sector will attract foreign investors and increase its capacity to facilitate the adoption of major Fourth Industrial Revolution technologies. Ukraine needs it badly as it lags behind in foreign direct investment attraction. Based on UNCTAD information, by the beginning of 2021 the share of inward FDI stock in Ukraine was $48.9 billion. or just 0.12% of the world total. Ukraine risks a major setback in foreign trade and investment in 2022 if it pursues the same policies and preserves old institutions and the structure of the economy.


Another positive externality of the unexpected surge of foreign trade was the generous cash flow of budgetary revenues and enhanced ability of the government to stimulate investment and consumer demand. Generous remittance inflow from Ukrainian labor migrants (~$15 billion in 2021) contributed to the record high GDP in dollar terms as it boosted domestic consumption. Hence the increase of retail trade turnover by 11.2% in January – November 2021 compared to the same period of 2020.

Despite favorable external conditions, the government failed to deliver on the economic growth it had planned at the beginning of 2021.

Instead of 5 – 5.2% GDP growth, the Ukrainian economy will see less than 3% economic growth. It is not enough to compensate for the 2020 recession when the national economy shrank by 4% of GDP.

The 2021 Ukraine GDP estimates vary from $181 billion (October, IMF) to $202 billion (Ukrainian Economic Outlook, December). It is up from $155 billion in 2020. This is quite impressive but still a far cry even from the middle income counties of the European Union. The International Monetary Fund estimated GDP per capita in Ukraine in 2021 at $4,384. It is the lowest indicator in Europe. Moldova’s GDP per capita is $4,791 (9.3% higher), in Russia it is $11,273 (2.6 times higher), in Belarus $7,032 (60.4% higher). Ukraine is just 35.7% of the world average which is $12,293.

Price instability

The authorities concentrated a lot of effort on stimulating domestic demand. The average nominal salary in November 2021 reached ₴14,282 or $525. Wages rose by more than 19% over the last year. Pensioners were also pleased to see a ~16% increase of their pensions. However this surge of household income was marred by inflation. In annual terms, it will be around 10% but the deflator (index of consumer and producers’ prices) in 2021 will be over 20%.

Such price instability is the result of the soft monetary policy of the National Bank and restrictions on competition in the domestic market. As of Dec. 1, 2021 the volume of cash in circulation (indicator M0) increased by 13.8% compared to Dec. 1, 2020. In the same period the indicator “money base” soared by 21.8% after a 36.4% rise in 2020. With restricted demand for hryvnia, the nascent domestic stock market, high regulatory and transaction costs for investors, the new money could not but boost consumer and real estate prices. The government was reluctant to speed up privatization even though ~70% of state owned enterprises were loss making. The capital amnesty campaign aimed at reducing the “grey” economy was given the cold shoulder both by big business and SMEs. The severe deficit of trust enhanced by low quality of the governance and law enforcement in the context of heavy tax and regulatory burden made all attempts of the authorities to reduce the informal economy futile.

General feeling: it’s getting worse

According to a December “Rating” poll, 70% of Ukrainians stated that the country is moving in the wrong direction. According to the poll conducted by the Association of Ukrainian Enterprises (SUP) and its US partner CIPE, 84% of Ukrainians believe that the country is in an economic crisis. An Institute of the Future poll in December revealed that 52% of Ukrainians claimed that their financial status had deteriorated. Only 10% of Ukrainians claimed that their financial status got better. Perhaps the favorable external trade conditions and generous government investment policies benefited a limited number of people.

The government welcomed the windfall revenues from export and import operations with more enthusiasm to spend and no determination to balance the general budget. In 2021 the state budget will receive about ₴60 more than initially planned. In 2021 government expenditures are expected to be ~41% of GDP or ~$77.5 billion. The urge to spend and stimulate was stronger than the sober necessity to balance the budget. In 2021 the deficit will reach 3.5% of GDP. It is not a big headache in the short-term but it definitely aggravates the debt burden.

IMF estimated that in 2020 to service public debt the government spent $17.87 billion. (11.5% of GDP), in 2021 – $21.88 billion (11.5% of GDP). According to the World Bank, in 2008 Ukraine’s public and state guaranteed debt was just $15.9 billion. By the beginning of 2021 it reached $41.52 billion. It increased by 2.6 times in 12 years and debt service payments soared by 4.5 times. The annual GDP growth rate in the same period was barely above zero and the quality of governance was stagnant. Cozy relations between the National Bank and big commercial banks on the one hand and the government in terms of purchasing government bonds did not create incentives to develop the financial market and to reduce costs of borrowing for SMEs and households.

The emphasis on government expenditures and consumption proved to be a mistake if the country wanted to ensure fast, long-term and inclusive growth. There is no developing or a transitional country in the world that managed to breach the income gap and become a dynamic competitive country with the size of the government exceeding 30% of GDP and the share of state assets exceeding 50% of the total. In 2021, the Ukrainian authorities ignored this scientific and historical fact. Short-termism in economic policy prevailed. The allocation of budgetary resources to big construction and infrastructure projects was popular among the people and profitable among a few selected companies, but the huge entrepreneurial potential of millions of Ukrainians remains largely frozen. The government paid more attention to formal gross indicators and government economic activities rather than economic liberalization and empowering people. In 2021, Ukraine did not make it to the top 100 countries in the Index of Economic Freedom and remained in the realm of the nomenclatura’s and oligarchs’ schemes.

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