What could help from Western partners consist of?
to continue to grow moderately in 2024 . The country can successfully complete the current heating season and prepare for the next one. However, there are more alarming predictions, and not all of them are related to military aggression on the part of Russia.
According to the government forecast, which is included in the budget for 2024, the GDP growth rate of the Ukrainian economy is at 4.6%. Moreover, it was initially predicted that the economy would grow by 5% in the coming year. However, in the final version of the budget the indicator was adjusted.
Based on the macroeconomic indicators of the 2024 budget, prices this year will increase by 9.7% (as in the case of GDP, the inflation rate between the first and second readings was adjusted, but for the better - reduced by 1.1%).
As for the dollar exchange rate, by the end of 2024 it could reach 42.1 hryvnia (this figure in the budget was also adjusted from 44.2 hryvnia).
Financial deficit
Macro indicators are calculated values, and therefore may differ from real ones, sometimes significantly. Thus, in the budget for 2023, inflation was calculated at 28%, but according to official data, prices at the end of last year are unlikely to exceed 5%.
But in 2024, inflation may rise more than expected, says Maxim Oryshchak, an analyst at the Center for Exchange Technologies. This can happen if the effect of a low comparison base has not been taken into account.
“That is, when compared year-on-year, unexpectedly low inflation in the second half of 2023 may increase the inflation rate in the second half of 2024 ,” the expert said in a commentary to Apostrophe.
If inflation accelerates to 11-12%, the economy will grow by only 2.5-3%, and wages in real terms will also increase less than expected - not by 6.9%, but by 4.5-5% or even less.
“But all these calculations are valid only if international financial assistance is provided in full or close to it ,” warns Oryshchak.
The point is that our foreign partners, primarily the United States and the European Union, can significantly reduce the volume of their financial assistance to our country. At the same time, the total need for external financing in 2024 will be $37.3 billion. And this, according to Finance Minister Sergei Marchenko, is already an adjusted figure, since this year’s budget includes a figure of $41 billion.
However, today there is absolutely no confidence that the promised funds will be allocated. The American Congress may consider providing aid to Ukraine in January, and the allocation of EU funds for our country is blocked by Hungary (although other member states of the union are looking for ways to circumvent Budapest's veto). But if the issue of financial assistance is not resolved at the beginning of 2024, the Ukrainian government will move on to Plan B.
According to Advisor to the President of Ukraine Oleg Ustenko, at the initial stage we may talk about increasing borrowing on the domestic market. But according to experts, these tools for replenishing the budget do not end there.
“The government will probably have to consider increasing taxes, in particular VAT. Excise taxes on some types of goods may also be increased. Special taxes may also be introduced for certain categories of enterprises ,” Ilya Neskhodovsky, head of the analytical department of the ANTS network, told Apostrophe.
Moreover, if the deficit in financial assistance from the allies turns out to be too large - for example, $20 billion - it is possible that a large-scale money issue will have to be carried out. And according to Oleksiy Kushch, an expert at the Ob'ednana Ukraine analytical center, the National Bank could print about 400 billion hryvnia (about $10 billion at the weighted average exchange rate this year - “Apostrophe”), which would significantly help in solving the problem of budget financing . But money emission also has a downside - accelerating inflation and devaluation of the national currency.
If the emission cannot be avoided, then Oleksiy Kushch predicts an acceleration of inflation from 10% to about 20%, and a weakening of the hryvnia within 15-25%. Accordingly, it is not difficult to calculate that in this scenario the dollar exchange rate will rise to 43-47 hryvnia. However, under more favorable circumstances for us, the rate will not be so high, although it is unlikely to be below 40 hryvnia.
In addition, the lack of Western assistance will also have social consequences - there may be delays in the payment of pensions, as well as salaries to public sector employees. First Deputy Prime Minister - Minister of Economy of Ukraine Yulia Sviridenko stated that at the beginning of 2024, thanks to Plan B, payments of pensions and salaries are not in danger. But if there is no further funding, then such a risk will appear in the long term.
Energy in debt
Finance is not the only area in which there is a certain shortage. According to the director of energy programs at the Razumkov Center, Vladimir Omelchenko, due to the destruction that the enemy inflicted on the domestic energy infrastructure last year, the country entered this winter without reserves of generating capacity. And when consumption peaks, the likelihood of planned power outages will increase dramatically.
“Currently there are about 700 thousand tons of coal in warehouses, ” says Vladimir Omelchenko. – This is not enough to fully cover the needs, especially if there are severe frosts. However, several units in thermal plants can use gas, reducing the need for coal. At the same time, there is about 13 billion cubic meters of gas in storage. This is quite enough for a moderate winter. And in case of severe frosts, you may have to buy 500-700 million cubic meters .
In the spring, power engineers will have to begin preparing for the new heating season, and problems may arise here.
“It is very important for Ukraine to build new generating capacities to replace the destroyed ones, but this is impossible due to the fact that huge debts have accumulated in the system, and investors are avoiding such systems ,” says Vladimir Omelchenko.
And in order to solve the debt problem, decisive reforms will be needed in the energy sector, primarily in the pricing system.
“It is necessary that the consumer pays the full cost of energy, and the state helps the least well-off through subsidies. In our country, through low tariffs, everything is subsidized indiscriminately. Moreover, the rich, who consume more, receive more help than the poor. We probably have the only social assistance system in the world designed to help the rich ,” the expert emphasized.
In addition, it will be necessary to change the methodology for calculating price caps (maximum market prices for electricity), since the current one also stimulates the accumulation of debts in the energy system. But the authorities have not yet announced plans to further increase electricity tariffs. The last time electricity prices rose was on June 1, 2023 – to 2.64 hryvnia per 1 kilowatt-hour. But this tariff is several times lower than the market one.
The fight for fuel
Another strategic area is automobile fuel. In 2023 there were no special problems here. True, at the end of the year, fuel deliveries were often delayed due to blocking of the border by Polish carriers , but there is still no talk of a real shortage. Although there is no need to relax.
“The main question that will occupy participants in the petroleum products market in 2024 is where to get fuel, ” Naftorynok expert Alexander Sirenko told Apostrophe. — Today there are no clear guarantees of supplies from any direction. So traders will have to make efforts to ensure stable supplies .
In addition, on January 1, the law on compulsory insurance of gas stations and oil depots came into force. This will entail additional costs for some companies (large chains already insure their facilities) and will cause some price increases. Plus, in 2024, a law on minimum reserves of oil and petroleum products will come into force, which will force many traders to reconsider their fuel storage systems. And this, in turn, will lead to increased costs, which will force some of them to leave the market altogether.
“We can also predict new attempts to raise excise taxes on liquefied gas (this step, in particular, is being lobbied by the head of the Verkhovna Rada Committee on Finance, Tax and Customs Policy, Daniil Getmantsev - “Apostrophe”), ” says Alexander Sirenko. — Until now, such initiatives have been repelled with the help of European partners. But if the decision is made, gas prices at gas stations will rise .
However, for the most part, fuel prices depend on world oil prices, which are simply impossible to predict in advance. For example, according to the expert, in recent weeks oil has been steadily falling in price, confidently approaching $70 per barrel. But then Yemeni pirates attacked the tanker, and the price went up again. And incidents of this kind can happen at any time. However, it will become increasingly difficult for Russia and Middle Eastern dictatorships to maintain unreasonably high oil prices.
“Recently, Angola, tired of constant demands for production cuts, announced its withdrawal from OPEC. It is possible that other countries will follow her example ,” summed up Alexander Sirenko.
Corridor instead of a deal
Exports are extremely important for Ukraine, as they provide the necessary budget revenues. As before, the majority of domestic exports are agricultural products.
“In 2023, the weather helped us a lot and we had a good harvest. In 2024, the figures are likely to be more modest. But we are absolutely confident that all of Ukraine’s food needs will be met ,” Deputy Head of the All-Ukrainian Agrarian Council Denis Marchuk told Apostrophe.
According to First Deputy Minister of Agrarian Policy and Food Taras Vysotsky, the harvest of grain and oilseeds in 2023 amounted to about 80 million tons , of which about 20-25 million tons will be used in Ukraine. And this is quite enough for domestic consumption. As for the export potential, based on the harvest indicator, it is 55-60 million tons.
And even despite the fact that Russia withdrew from the so-called “grain deal” in the summer of 2023, the export of grain and other products from Ukrainian ports continues. Moreover, the Ukrainian government, together with the British insurance company Marsh McLennan, has created an insurance fund in the amount of $100 million, which is designed to stimulate exports. True, these volumes will still need to be exported to world markets. And, as Denis Marchuk says, in 2024 it will be necessary to ensure the export of 6 million tons per month. At the same time, since August 2023, about 13 million tons of products have been exported through the “grain corridor”. So there is something to work on.
In addition, in 2024, an important event for the agricultural sector will be the next stage of land reform, which involves increasing the limits on land acquisition by 100 times - from 100 to 10,000 hectares, as well as admitting legal entities to the market. But according to Denis Marchuk, farmers are not happy with this prospect and are unlikely to buy land under the new rules.
“The financial situation of Ukrainian farmers today is very precarious. Declining grain prices and problems with exports - all this has put producers in very difficult conditions. And at the same time, many of them actively help the army, ” explains the expert. — We are not against carrying out land reform and the entry of legal entities into the market. But we believe that until the end of martial law and another two years after its lifting, the limits on land acquisition should remain at the current level .
Take off command
The year 2024 may become significant in one more aspect - it is possible that planes will begin to fly in Ukraine again, and not military ones, but civilian ones. The main condition is to ensure the safety of both the flights themselves and the ground infrastructure and, of course, people. But according to former Minister of Infrastructure Vladimir Omelyan, this is extremely difficult, if not impossible, if active hostilities continue. Perhaps the launch of air traffic from air harbors in western Ukraine, primarily from Lviv.
“The Russians may have a desire to attack civilian airfields, but existing air defense systems are capable of repelling such attacks,” Omelyan said in a conversation with Apostrophe. He also believes that the aggressors will not be able, even if they want, to attack planes flying from airfields in the west of the country.
But many do not share this optimism. For example, Pavel Lakiychuk, head of security programs at the Center for Global Studies “Strategy XXI”, emphasized that Ukraine today does not have air supremacy
“Even despite a significant increase in air defense, missile breakthroughs are possible. The Russians are shelling a lot of airfields, now the military (Starokonstantinov, Mirgorod, etc.). And there is no guarantee that at some point they will not decide to shoot at civilians as well ,” the expert told Apostrophe.
“Until 100% and even 110% security is ensured in terms of protecting airports, we cannot talk about resuming flights ,” agrees transport expert Kirill Novikov.
But, we repeat, the authorities have such plans. In any case, one thing is clear: the main problem in 2024 will be the issue of security. However, this applies not only to the economic sphere.
