What are the forecasts for the Ukrainian economy for next year?

We need to have nationwide patience. The battle for existential choice continues

Next year will be difficult militarily. We will be limited in our actions due to the depletion of reserves of weapons and military equipment from our partners, the too slow pace of restoration of their defense industry and the small capacity to increase our own military production. Therefore, it is necessary to gain “nationwide patience”, refrain as much as possible from public pressure on the highest military-political leadership of the state in terms of demands for “quick large-scale victories and offensives” (as was the case at the end of 2022) and give it the opportunity to build and apply such a strategy and tactics that will bring the greatest success in the future. Our goal is not only the liberation of our territories and the maximum weakening of the enemy’s potential (which remains strong), but also the preservation of the lives of the defenders and defenders of Ukraine, the civilian population, reducing the scale of destruction, and avoiding the transformation of our territories into “dead lands.”

We must remember that, despite the huge losses of 2022-2023 in personnel and equipment, 57% of the original number of tanks, 63% of armored combat vehicles, 77% of aircraft, 66% of helicopters (without new production). And while some of this will be of limited use, it is still a lot to fight in a long-term trench warfare. We and our allies will have to make a lot of efforts to quickly resuscitate and increase military production. Taking into account the contracts signed in 2022-2023, we expect to see a wider range of jointly produced equipment available as early as 2024.

This will be a difficult year geopolitically. The increase in the weight of Eurosceptics, the elections in the United States, the echo of which we already felt at the end of this year. In this regard, the most important task for our diplomacy is to prevent Russia’s long war against Ukraine from falling off the radar, to strengthen the focus on the need to expand the “military” and non-military (financial, humanitarian, energy) “Ramstein”, to intensify work with the states of the “Global South” “and those who still have not given a sober assessment and have not decided whose side they are on. We must support the dynamics of contacts that are demonstrated, for example, by consultations on the Peace Formula.

If during the first round in Copenhagen it was about representatives of 13 EU states, then the meeting in Kyiv on December 1 already brought together representatives of 86 states and international organizations. Additional efforts are needed to expand the “military Ramstein” coalition, because the potential of the countries currently involved in it is gradually being exhausted. We must add more pressure in introducing new and expanding sanctions against Russia, because the speed of ending the war depends not only on our ability to destroy the enemy on the battlefield, but also on his ability to continue waging this war. I urge our partners to abandon their fears that the supply of new types of weapons (primarily for “control of the skies”) and the introduction of expanded sanctions could “provoke Russia to escalate.” Without belittling the military potential and cunning of the enemy, I still remind you that the country that declared complete hegemony in the Black Sea is now forced to hide the remnants of its fleet from Ukrainian naval drones and missiles...

The main risk to macro-financial stability is the completeness and rhythm of external financing. The situation is complex and will be different from this year. However, from January 1, 2024, budget funding will not stop. There is a margin of up to two months, during which we count on the legislative formalization of political decisions on the allocation of most of the required $37.3 billion in external financing. At the same time, the relevance of the issue will remain throughout the year and will further intensify towards its end (if the war is extended to 2025). In this context, it is extremely important to move towards a practical solution to the issue of confiscation of frozen Russian assets, which will not only give us an additional resource, but also ease the financial burden on our international partners.

About UAH 100 billion is “lost” annually at customs alone.

Despite all the risks, we expect that macro-financial stability will be maintained. Budget emission is seen as an option of last resort. The main internal reserve, in addition to the decisions already made, is de-shadowing and the fight against corruption.

In December 2023, we adopted a package of laws that significantly strengthened our “anti-corruption framework” and supported its stable functioning with budgetary resources. We expect that in 2024 the “framework” will thank the budget and the state with additional revenues as a result of the fight against corruption. After all, about 100 billion UAH are “lost” annually at customs alone.

Significant volumes of markets for counterfeit excisable products remain. The share of the illegal tobacco market alone is estimated at 21.8% in 2023, and the budget loss from this is UAH 23.5 billion. There is also a significant market for alcohol and alcoholic products. Both strictly law enforcement mechanisms and strict control over the circulation of relevant products should be applied to them, and in relation to the latter, the completion of the privatization of state assets in the alcohol industry should also be completed. Next year we count on a complete relaunch of the Bureau of Economic Security (a structural beacon in the IMF program) and support for our bill on a transparent competition for the selection of Customs management.

Important steps to maintain macro-financial stability will also be: continued restructuring of external debt, support for the stability of the banking system (a full return to market banking supervision and its strengthening, the beginning of the resolution of NPL (the share of non-performing loans), the beginning of the implementation of recapitalization plans based on the results of diagnostics of banks) and other steps , determined by the program with the IMF. Separately, I would like to draw attention to the National Revenue Strategy, which will be presented in the near future, and which will determine the directions for reforming the tax system in the medium term.

Security and defense remain an absolute priority in the budget, to which, as this year, at least half of the expenditures will be allocated. Non-military capital expenditures due to the transfer of the road fund to the general budget fund and the redirection of military personal income tax from local to the state budget are already limited. Defense orders will be increased, which, together with increased cooperation with foreign manufacturers of weapons and military equipment, will provide incentives for the development of the military-industrial complex and related industries. Understanding the huge role of UAVs in modern warfare, the state budget allocates 43 billion UAH for their production and purchase - this is 16.8% of the total expenditure on weapons, military equipment and ammunition (255 billion UAH). For comparison, spending on UAVs alone will exceed in 2024 by almost 20% all military purchases that were carried out in the year before the start of a full-scale invasion. In addition to drones, priority is given to missile weapons and ammunition (175 billion UAH will be allocated to these two positions), scaling up the production of electronic warfare equipment and armored vehicles.

The social sphere remains the second main priority. We have restored the indexation of the cost of living. In 2024, the minimum wage will increase in two stages to UAH 8 thousand. By the end of 2024, we expect a real increase in average wages of 8.5%. In the spring we plan to once again modernize pensions. There should be no illusions that everything is in order and that this is quite enough, we are doing what we can do now.

We will maintain incentives for the development of small and medium-sized businesses and will expand their lending through the “5-7-9%” program, including with the involvement of international partners. We plan to further improve the conditions of this program in order to focus it on supporting primarily processing enterprises with a high share of added value.

We expect to revive housing construction, which dropped by 4.3% over the first 9 months of 2023, by intensifying the state programs eOselya and eVidnovlennya. We will continue to actively support farmers, who today provide Ukraine with 2/3 of export earnings. To attract investors and support exporters, we plan to significantly expand war risk insurance programs. If all internal and external incentives can be harnessed, we can expect that the growth slowdown in 2024 will be less noticeable.

In 2024, the minimum wage will increase in two stages to UAH 8 thousand

Additional growth potential comes from improving the business climate. In 2023, a government working group worked on the most ambitious deregulatory reform since independence. Of the existing 1025 government regulation instruments, 235 (or 23%) are proposed to be abolished, 537 are proposed to be simplified and mainly digitalized. However, as of mid-December, only a hundred instruments have been canceled. We expect that this work will be completed in 2024 as early as possible. Plans for the coming year include the same large-scale reform of the system of government supervision and control, with its transfer to uniform European standards.

A powerful driver of recovery is recovery projects. The necessary institutional framework is there. It is necessary to update the Ukraine Recovery Plan presented in Lugano, which will turn two years old in July 2024, and move on to its practical implementation through specific projects, keeping in mind the fundamental principle of “building back better.” “Smart solutions” in all areas, digitalization, “green technologies”, resource and energy efficiency, security - should be at the heart of every recovery case. We hope for the adoption of such a program, albeit a more compact one, within the framework of the Ukraine Facility with the EU. The recovery priorities are also clear - facilities that create a significant number of jobs, housing, educational and medical institutions, transport infrastructure and security infrastructure. To activate the return of Ukrainians from abroad, this is a minimum program, because people must have a place to live, a place to work and earn a living, a place to educate their children and receive treatment.

Must pay significant attention to strengthening cyber defense. The enemy does not have much success at the front and cannot repeat blackouts in the energy sector, so he will try to find targets where we still remain vulnerable (like the attack on the national mobile operator Kyivstar), and the potential scale of losses could be significant.

Humanitarian demining. One of the leading tasks for 2024. After all, the contamination of territories with explosive objects hinders both the processes of restoration of economic activity and the implementation of restoration projects. We must intensify work in five areas at once: 1) increasing the number of mine clearance specialists; 2) increasing the number of attracted equipment (including scaling of launched production in Ukraine); 3) increasing the attraction of international assistance, in particular from states that have relevant experience supporting Ukraine, but for their own political reasons are not ready to participate in military assistance; 4) launching a transparent market for humanitarian demining, where the state will partially compensate the cost of work for their customers; 5) growth due to these above-mentioned factors in the rate of cleanup of the territory of Ukraine in

Today farmers provide Ukraine with 2/3 of export earnings

I will end my expectations for 2024, essentially, with where I began my assessments of the outgoing year—with European integration. I beg you, do not believe the various “information gypsies” who, at best, are catching the hype, and at worst, knowingly or unknowingly spreading Russian propaganda, trying to downplay the importance of the opening of negotiations as such, that it “has no product significance” (as they say ), and membership itself as a very, very distant, almost impossible prospect. This is wrong. They said this two years ago before each new stage of accession. Ukraine is now setting the pace for European integration; our accession is a challenge that, without exaggeration, will initiate structural changes and reform of the EU itself. This is obvious, and it is recognized at the level of political leadership in the EU itself. There is political will for this. Of course, we do not know what the political landscape in the EU will be like in the medium term, during which negotiations will continue, but we will do the maximum that depends on us.

Work on a negotiating framework covering various aspects of future negotiations on Ukraine's EU membership has already begun. In parallel with the development of the framework, there will be a full screening of our legislative framework for compliance with EU acquis, which is grouped into six clusters and 33 chapters. This, in fact, is the structure of future negotiations. In March-April 2024, we expect approval of the negotiating framework, the actual start of negotiations on accession to the EU and the opening of the first chapters. But we shouldn’t wait for the EU to give us “homework”, because within the framework of self-screening we already have an understanding of where and what should be implemented.

The reform framework for 2024 is known - these are negotiations on accession to the EU in the chapters that will be open, a program within the Ukraine Facility and the EFF program with the IMF. The most important will remain the introduction of institutional changes to strengthen the rule of law, develop an effective judicial system, strengthen democratic rights and freedoms (taking into account martial law), demonopolize the economy, weaken the influence of powerful financial and industrial groups and clans on it, including through the settlement of the issue lobbying, and the fight against corruption. We must increasingly comply with the rules of the EU, the club of rich countries to which we are invited. Therefore, increasing the scope, as well as strengthening the connection between reforms and external financing (“reforms in exchange for money”) is normal and meets our long-term interests. All new EU members who were previously candidates for accession went through this.

As I prepare to celebrate the coming New Year, I remember the beginning of the war, that feeling of national unity and patriotism, which is sometimes lacking in society now. As the president said, this is truly our most powerful weapon, which destroyed the blitzkrieg and which Putin is so afraid of. Alternating between euphoria and fatigue during war is normal. It is important not to let these emotional swings completely take over the public agenda.

It’s worth finally getting rid of the unnecessary illusions that we were trapped in a year ago:

“the enemy is about to fall, the war will end instantly, we buy tickets from Ukrzaliznytsia and go for coffee in Yalta”;

“the economy will be reborn like a Phoenix, partners will flood us with billions of grants and cheap loans”;

“millions of refugees will finally return home” and the like.

But don’t fall into total despondency, “filtering” the propaganda actively spread by our enemy like:

“Ukraine is losing the war”;
“internal political confrontations and conflicts are intensifying, and it is about to spill out”;
“The West is mortally tired of Ukraine and we must immediately enter into negotiations with Russia with the inevitable surrender of territories” (sect of adherents of the “Korean scenario”).
Because this self-confidence and disbelief are two sides of the same coin that interfere with a real assessment of events. There are many factors that indicate that the war could last for years. We know that Russia’s military potential is greater, and the occupying country itself will not disappear anywhere. But is this news for us?

Despite the challenges that exist and which I always speak about honestly and without embellishment, we have been holding back the former “second army of the world” for two years now, working to restore the economy and ensure stable operation of all spheres of public life.

There is a clear understanding of what, where, when and how to do in 2024.

The battle for the existential choice - to be free, dignified and in the family of a united Europe - continues. And in this battle, everyone must, first of all, internally decide for themselves in which place they are more useful.

Therefore, we hold on, believe in ourselves and the Armed Forces of Ukraine and continue to consistently move towards Victory.