I read this:
I’m in the cohort of the the essay’s protagonist(s):
“People under fire couldn’t give a damn if Zaluzhny had a quarrel with Zelensky or not,” one commander says. Mr Drobovych agrees. When he chats to his comrades at the front, no one is talking about the need to return to Kyiv to “fix politics”. The only discussion is about staying alive. For this cohort of Ukrainians, there is no doubting the risk the enemy still poses. “Russia is asking a simple question of us: life or death. That will keep us fighting, regardless of what happens in Kyiv or Washington.”
Politics has not returned, per se, but the jornoist spotlight on Ukraine’s idiocracy has. Joshi should probably visit more and get his hands colder, maybe learn the language so he can communicate better in the trenches, get a firmer grip on reality.
The macroeconomic scenario for Ukraine and forecast for the rest of this year and 2024 is based on the assumption that war with Russia will continue for at least one more year, if not two or three.
GDP 2023. UEO improves its forecast for the recovery of the dollar equivalent of Ukraine's GDP from $157 to $175-182 billion (+10-15%)1. The share of the domestic economy (including sectors whose income is supported by government spending), according to the group’s estimates, will decline to 66% of GDP ($118 billion), versus 71% in 2022 ($112 billion).
For annual real GDP growth, UEO improves its previous estimate from 4.3% to 4.7% (equivalent to 74% of the 2021 Ukraine’s real GDP level).
UEO maintains its 2023 inflation forecast (CPI) at 6-7% at the end of 2023. Due to the current downturn in foreign markets, the group maintains its forecast for a slowdown in industrial inflation (PPI), within 24%.
The estimate of the average monthly salary in the country increases to UAH 17,200 (+2% to the previous estimate), or $470 in equivalent at the current NBU exchange rate.
GDP 2024. UEO forecasts real GDP growth of 4-5% next year, this despite the fact that fighting is likely to continue until at least 2025. The possibility of partially unblocking Odesa seaports for the export of the entire range of products, which, if the project is fully implemented, will significantly expand exports.
The group expects the Consumer Price Index to range between 5% and 8% throughout 2024, while the Producer Price Index will average 11% to 12% for the year. We expect the GDP deflator, or the general weighted average index of price changes, will be 11.4% in 2024.
The average salary in 2024 will increase to UAH 19,500 , or $500, in conditions of a floating exchange rate and devaluation to UAH/USD 39-39.5 on average for 2024.
UEO expects a change in the industrial production index from the current 59.5% to 65%, or within +10% yoy (2021=100).
State Budget 2023: During January-October 2023, the country’s budget received more than UAH 2.2 trillion (UAH 1,771 billion in own revenues and UAH 405 billion in grants). The budget’s own revenues, excluding grant assistance, demonstrate 40-50% of exceeding the plan, according to the latest edition of the Law on State Budget (UAH 1,416 billion).
According to UEO’s forecast, by the end of the year, the state budget’s own revenues will amount to about UAH 2.3 trillion (+13.4% to the current Ministry of Finance plan - UAH 2.01 trillion). Taking into account the potential receipt of an additional UAH 92 billion in grant assistance, in addition to the already received UAH 405 billion, total budget revenues will exceed UAH 2.75 trillion (+38% to the Ministry of Finance plan).
In September, the Ministry of Finance once again increased the operational plan for budget revenues and expenditures to UAH 2.01 and 3.74 trillion, or +11% and +5.7%, respectively. The revision of the plan is due to the preservation of stable grant support from international partners and the receipt of a record UAH 205 billion from “their own revenues of budgetary institutions.” At the same time, the expenditure component in September reached UAH 447 billion, of which UAH 285 billion was spent on defense.
UEO expects that by the end of the year the fiscal gap in the budget will amount to UAH 1.16 trillion ($32 billion UAH in foreign currency equivalent at the current NBU exchange rate). Taking into account the need for funds to refinance the debt, the total amount of funds required to ensure the balance of the budget sector will reach UAH 1.5 trillion ($41 billion in dollar equivalent at the current NBU exchange rate).
State Budget 2024: According to the Law on State Budget 2024, revenues will be UAH 1.75 trillion, expenses will be UAH 3.3 trillion, and the deficit will be UAH 1.59 trillion. The main conclusion: all three indicators are 5-15% higher than the planned budget indicators for 2023, but already lower than the actual budget execution figures for this year. In the 2024 budget, as in the current year’s budget expect to see a “hidden trillion hryvnia” of additional expenses, as well as the continuation of grant support from international partners, which is procedurally impossible to include in the plan.
The main risk next year remains the possibility of a reduction in budget support (including about UAH 500 billion in expected grants) from Ukraine international partners, which is fraught with an increase in the budget deficit to more than UAH 2 trillion and the resumption of emission financing.
Balance of payments 2023. We estimate a deficit in private sector operations of -$29.2 billion, which will be financed by external government borrowings of $47.8 billion. The net inflow of foreign currency into Ukraine in 2023 – the second year of the war – may amount to about $18 billion.
At the same time, NBU reserves will increase by at least $11 billion - up to $40 billion.
The forecast for the trade balance (goods and services) in 2023 will worsen to -$41.1 billion (versus -$25.7 billion in 2022).
UEO’s forecast the balance of public sector operations in 2023 at is +$26.1 billion excluding grants and +$39.9 billion including them.
The current trend of the exchange rate shows that the NBU wants to reduce the pressure of the exchange rate on inflation and is ready for this to partially revalue the hryvnia in order to reduce the cost of imports. The National Bank will continue to contain devaluation through interventions, and partial revaluation will also attract foreign exchange earnings from exporters, who will be inclined to sell it at the beginning of the medium-term trend of strengthening of the national currency. Accordingly, the rate will be at the level of USD/UAH 36.6-36.7 at the end of 2023, with the annual average being USD/UAH 36.6 .
The balance of payments in 2024, taking into account our base scenario for the continuation of the war, throughout 2024 will remain similar to the structure of 2023. Expect a deficit in private sector operations of -$24.3 billion, which will be offset by government attractions of $50 billion (mainly external financing and grants).
The balance of goods and services at is forecast at -$39.5 billion.
Government borrowings in 2024 are forecast at $50 billion. Total repayments, including servicing, are expected to be $14.7 billion. With a likely restructuring of Eurobond payments ($4.6 billion according to the IMF scenario), the total burden on public sector payments will drop to $10 .1 billion
The balance of public sector operations can be estimated at +$20.4 billion excluding grants and +$35.4 billion including them. At the same time, subject to restructuring, the balance of public sector operations will be +$25 billion without taking into account grants and +$40 billion when taking them into account.
Based on the current exchange rate trend, we assume two scenarios for the exchange rate behavior in 2024:
The smooth devaluation scenario will contribute to a partial reduction in the $40 billion deficit in foreign trade in goods and services. This devaluation will be carried out by the NBU smoothly throughout the year in order to maintain the profitability of hryvnia assets and reduce the risks of entering the currency. Accordingly, the rate at the end of 2024 will devalue by 10% relative to 2023 - to UAH/USD 40.5 (UAH/USD +/- 1), and the average annual rate will be about UAH/USD 39 (UAH/ USD +/- 1).
The revaluation scenario is based on the fact that the strengthening of the hryvnia will become an important element in suppressing inflation in 2024 below the 5% target. That, in turn, will partially reduce the inflationary pressure of import prices and also contribute to the return of foreign exchange earnings to the country, according to the NBU. According to this scenario, the rate will strengthen by 5-7% by the end of the year - to UAH/USD 34.0 (UAH/USD +/- 1). At the same time, the average annual rate will be fixed at UAH/USD 34.9 (UAH/USD +/- 1).
Exchange rate scenarios for 2024 cannot be calculated because such a forecast under the conditions of a “managed floating exchange rate” on the part of the NBU is not in the plane of econometric calculations, but in the plane of political analysis of the behavior of the National Bank’s board.
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