Ukraine’s gross domestic product will fall and unemployment will increase, top officials continue to warn. Instead of 3.7% GDP growth this year, as previously estimated, the government is now forecasting a 3.9% decline as the world teeters on the brink of a COVID-19 economic recession.
Some experts have warned that the official GDP forecast may be optimistic. If current quarantine measures – that have brought the country to a grinding halt – last for longer than three months, Ukrainian GDP could shrink by as much as 9%, the Dragon Capital Investment Bank has warned. Other European countries are already preparing their citizens for lockdowns and quarantine measures that last into the late spring or summer.
The Ukrainian Chamber of Commerce and Industry has worsened its outlook for Ukrainian unemployment. Its head, Gennadiy Chyzhykov, told the Ukrinform news agency that 500,000 to 700,000 are already out of work in Ukraine because of coronavirus quarantine measures closing down businesses. He suggested these workers who lose their jobs may be excluded from official statistics because they were employed unofficially: “If you add the nearly 1.5 million unemployed, then we receive unemployment figures on the level of 2 to 2.2 million people,” he said.
Ukrainian Prime Minister Denys Shmygal has said that the official unemployment rate will increase by only 1.3%, from its current 8.1% to 9.4% by the end of the year. “We may not be happy with all the numbers, but we expect an improvement of the economic forecast in the second half of the year,” Shmygal said on March 30.
Determining the real unemployment level in Ukraine is not easy because of the size of Ukraine’s so-called grey economy, where half of the country’s workforce is thought to be employed unofficially or illegally. According to a recent report from the Ministry of Economy, only 12.8 million of the 28.5 million working age Ukrainians are employed legally, with proper contracts and paperwork. A lack of documented employment makes it hard to guarantee protection of worker rights, access to state benefits, but also that taxes are being properly collected.
Beyond Ukraine, about 25 million people may be left without work due to the coronavirus pandemic if governments do not adequately respond, the International Labor Organization (ILO) said in a statement. In comparison, the global financial crisis of 2008-2009 led to 22 million people losing their jobs worldwide.
Shmygal had more bad predictions for the country’s economy on March 30. Ukraine’s 2020 inflation rate is estimated to be 8.7%, he said, rising from a 5.6% estimate in November, and the country’s average wage will shrink to Hr 11,000 ($372), because of unemployment and currency depreciation.
The country should also be prepared for further weakening of the hryvnia, the PM said, predicting a new long-term currency exchange rate of Hr 29.5 to the U.S. dollar. Other experts have said the Ukrainian currency can fall even more. The 2020 budget had initially expected an exchange rate of Hr 27 to the dollar. The national currency is down from record highs, having lost about 11% of its value this year. It currently stands at about 28.1 to the dollar.
After first instructing the Ministry of Finance to find budget savings of $1.7 billion, the government now says it expects a $4 billion decrease in tax revenue for state coffers this year. The government has austerity plans, and says it may need to make spending cuts in education, culture and sport. Ukraine’s entire budget for 2020 is only $50 billion, and $6 billion of that was for servicing foreign debt. Revisions to the budget are dependent on the approval of parliament this week.
Before an extraordinary meeting of the Ukrainian parliament took place on March 30, President Volodymyr Zelensky warned lawmakers to act in the national interest. On Sunday March 29, Zelensky said in a video message that the adoption of two laws in particular was critical this week. Although he did not name the bills, it is understood the president was talking about a law preventing the return of insolvent banks to their former owners, and a bill that starts to unlock the country’s agricultural land market.
Zelensky said: “Our country has, in fact, found itself at a crossroads due to coronavirus, and has two paths. The first is the adoption of two vital laws. After that, we will receive support from our international financial partners in the amount of at least $10 billion. This is needed to stabilize the country’s economy and overcome the crisis.” The alternative, the president warned, was failure, economic decline and defaulting on debt repayments.
Some supporters of certain Ukrainian oligarchs are pushing lawmakers to reject the laws, reject the International Monetary Fund and to default on debt repayment. Artem Shevalev, deputy chairman of the supervisory board at state-owned PrivatBank, told the Kyiv Post that outcome would be a disaster for Ukraine and trigger the collapse of its banking system: “Defaulting has many aspects and one of them is its effect on the banking system. Given the share of Ukrainian sovereign bonds in the the portfolios and capital of a number of Ukrainian banks – first of all state owned – defaulting on that debt will mean that most of the largest banks will go under (i.e. breach the capital ratios) and recapitalising them will cost the state hundreds of billions of hryvna. And recaping these banks with new bonds will be problematic – as post-default these bonds will have questionable value.”
Anxiety is growing over the state of Ukrainian metal exports, which account for a large amount of the country’s revenue, alongside grain. The association of metal enterprises of Ukraine, Ukrmetallurgprom, and the Federation of Metallurgists of Ukraine, petitioned the Infrastructure Ministry of Ukraine to urgently approve applications made by exporters. “Ukraine is experiencing extremely difficult times associated with the COVID-19 pandemic, which can have negative long-term consequences for the Ukrainian economy and lead to a significant reduction in exports … The decrease in demand and a drop in metal prices worldwide… led to a forced reduction in production at domestic metallurgical enterprises,” the associations warned in the statement.
Ukraine’s record-setting grain and food exports are one silver lining this week, with the latest official statistics, as reported by Interfax-Ukraine, showing that exports are up over the previous year. Since the beginning of the agricultural year of 2019/2020 (July-June) and as of March 30, 2020, Ukraine has exported 45.4 million tonnes of grain and legumes, 7.8 million tonnes more than at the same period of the previous agri-year. The country has also exported 17.8 million tonnes of wheat, 22.8 million tonnes of corn, 4.3 million tonnes of barley and 272,800 tonnes of flour.
The U.S. Department of Agriculture (USDA) in March raised its forecast for grain exports in Ukraine for the 2019/2020 agri-year by 680,000 tonnes compared with the February forecast, to 57.34 million tonnes due to corn. This was reported by Interfax-Ukraine.
