Almost 3 mln Ukrainian women are abroad and this could cost 10% of pre-war GDP

Economic situation

According to the results of the regular monthly survey of enterprises "Ukrainian Business in Time of War" conducted by the Institute for Economic Research and Policy Consulting, in June, compared to May, the index of assessment of the current financial and economic situation increased, and the expectations of enterprises regarding changes in the financial and economic situation in the six-month perspective remain optimistic, having increased from 0.43 to 0.46. Positive trends in the short term are also confirmed by the Institute's improved estimates of real GDP growth in May and June: 21% and 15% respectively (amid a low comparison base).

On the other hand, the medium-term outlook remains less than optimistic: two-year expectations for business activity expansion deteriorated slightly, and the level of uncertainty in the two-year outlook increased. The labor market also experienced both short-term negative developments (an increase in the percentage of firms that laid off workers) and signs of structural problems: in June, after a two-month break, difficulties in finding unskilled workers increased and, to a lesser extent, difficulties in finding skilled workers were observed.

“This problem is also confirmed by the fact that, according to Bloomberg, about 2.8 million Ukrainian women of working age remain abroad, which could cost Ukraine about 10% (USD 20 billion) of its pre-war GDP, and the Ministry of Economy estimates that the labor shortage could reach about 4.5 million people in the medium term (by 2026).”

According to the State Customs Service, in January-June 2023, Ukraine's trade turnover amounted to USD 49.8 billion, up 4% compared to the same period in 2022. Amid a slow export recovery (physical destruction of some facilities and deterioration of logistics due to Russian aggression), the trade deficit in goods is rapidly expanding: from USD 4.5 billion in the first 6 months of the year. In the first 6 months of 2022 to USD 11 billion dollars. The termination of the grain agreement and Russia's attacks on port infrastructure will have a further negative impact on this indicator and will require active steps to reorient logistics on the western border and caution in the process of currency liberalization from the National Bank.

Public sector

During the regular auction for the placement of government securities held on July 25, 2023, the Ministry of Finance raised UAH 6.4 billion for the financing of the state budget for terms of 1 to 3 years at rates ranging from 18.3% to 19.75%, as well as USD 227.3 million (for 1 year, yield 4.71%). Investors were most interested in hryvnia securities maturing in July 2026 (UAH 5 billion was borrowed, respectively). The weighted average yield on new hryvnia borrowings was 19.47%.

“In addition, the state budget received the sixth tranche of EUR 1.5 billion in macro-financial assistance (MFA) for 2023. In 2023, Ukraine has already received EUR 10.5 billion in macro-financial assistance from the EU, bringing the total amount to EUR 18 billion.”

The funds are provided on favorable terms for Ukraine and are used to finance priority state budget expenditures. The loan has a maturity of 35 years. At the same time, interest and other debt service payments will be covered by the EU instead of Ukraine. The next tranches under the large-scale MFF program will be transferred to the state budget in 2023, subject to Ukraine's compliance with the conditions agreed upon by the parties.

Currency market

A noticeable increase in demand for foreign currency at the interbank market by bank clients against a stable supply of foreign currency led to an increase in net sales of foreign currency by the NBU to balance the market to USD 591 million last week (compared to USD 401 million a week earlier). In the first half of 2023, the NBU's net sales of foreign currency amounted to USD 12.3 billion, which corresponds to about USD 2 billion per month.

“At the same time, the amount of Ukraine's international reserves remains sufficient to meet the country's foreign currency needs and maintain stability in the foreign exchange market. Thus, as of July 1, 2023, Ukraine's international reserves amounted to USD 39 billion, according to preliminary data from the NBU. According to the NBU, as of July 1, 23, Ukraine's international reserves amounted to USD 39 billion (+4.5% per month), which ensures financing of 5.2 months of future imports.”

Financial sector

The banking sector's liquidity (in the form of balances on correspondent accounts and NBU certificates of deposit) remained at around UAH 700 billion, including over UAH 500 billion in NBU certificates of deposit. The main factor behind the high level of bank liquidity was spending from the Government's Unified Treasury Account, while the NBU's interventions to sell foreign currency and cash outflows into the non-bank circulation reduced the amount of free liquidity in the banking system. The liquidity surplus resulted in low demand from banks for refinancing loans and kept market rates at the lower bound of the NBU's key policy rate (20%).

Last week, banks issued 486 concessional loans totaling UAH 1.8 billion under the Affordable Loans 5-7-9% program, about half of which were issued by state-owned banks. The total number of loans issued under the program since the beginning of large-scale military operations in Ukraine amounted to 32,600 loans totaling UAH 127.9 billion. Given the priority of wartime goals, the lion's share of loans was issued by banks to support agricultural production and anti-war purposes.

In addition, in June 2023, banks issued 2,100 loans worth UAH 5.5 billion under state guarantees on a portfolio basis. As of July 1, 2023, 29 lending banks serviced 19,300 loans worth UAH 58.4 billion. Principal obligations, which are partially secured by state guarantees on a portfolio basis, amounted to UAH 28.2 billion. This is about 78% of the total limit of guarantees provided (UAH 36.3 billion).

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About the author: Bohdan Danylyshyn, professor at the Vadym Hetman Kyiv National Economic University, former Chairman of the NBU Council.