Ukraine’s shadow economy has grown to 30 percent of its gross domestic product in 2020, an increase from 27 percent in 2019, according to a report published by Ukraine’s ministry of economy on June 25.
With a GDP of $151 billion in 2020, the shadow economy represents over $45 billion in lost revenue to the state.
The term “shadow economy” refers to economic activity that is undeclared or informal, including illegal activity. Its size represents a major fiscal problem and an obstacle to further economic growth.
It’s often estimated that at least a quarter of Ukraine’s economy is in the shadows.
Advanced economies in the European Union are estimated at about 10–20% in the shadows, according to a 2019 estimation by the International Monetary Fund. In Ukraine, various estimates put it at 27–40%.
Danil Getmantsev, the head of the parliament’s finance and tax committee, believes, however, that it’s closer to half in Ukraine and has made getting Ukraine’s economy out of the shadows one of his priorities, he told the Kyiv Post back in June.
Fighting the shadow economy includes ending the enormous market of smuggled and counterfeit goods, which could massively help Ukraine’s budget.
De-shadowing the economy will add at least 2% to the annual gross domestic product growth, according to Getmantsev.
Getmantsev and the Finance Ministry estimate that the government’s new reforms, including a broad fiscalization law passed in 2020, can bring the state budget an extra $1.6 billion a year from excise duties, and $2.2 billion a year in other taxes, including from oligarch-dominated businesses.
Read also: Inside Danil Getmantsev’s battle plan to push billions of dollars out of economic shadows
