The Ukrainian economy was able to adapt to the conditions of the military conflict.
2023 is coming to an end. The country has learned to live in conditions of full-scale war , and the economy is even showing timid signs of growth. “Apostrophe” recalled what this year was like, summing up its economic results.
First full year of war
The outgoing year 2023 for Ukraine was not only the second year of a major war, but also the first completely war.
Life in war conditions presupposes adaptation (as far as possible) to these conditions, and the Ukrainian economy this year has fully demonstrated its high adaptability.
Perhaps the main result of 2023 is that the economy stopped falling and began, albeit slowly, to grow. If in 2022 the country's GDP collapsed by 29.1%, then in 2023 it will most likely grow by about 5%. Of course, we wouldn’t dream of such a pace, but, let’s be honest: during a war, even such growth is not bad.
During periods of economic crises in Ukraine, prices have always risen significantly, and the current one, caused by the Russian invasion, was no exception. Thus, in 2022, inflation was 26.6%, which, by the way, is not the worst indicator in the history of our country (it is fundamentally incorrect to compare the current situation with the “dashing 90s”, but in 2015 prices increased by as much as 43. 3%).
As for 2023, the situation with inflation is completely different. If in the middle of the year price growth was predicted at about 10%, then by the end of the year expectations dropped to 5%. Such indicators were infrequent even in peacetime years.
Under the influence of global trends, price increases for most food products have slowed down. At the same time, for some positions there is even a decrease in them. For example, eggs have fallen in price by 20% since the beginning of the year. Obviously, there is some additional karma in this, since in Russia it is eggs that have been rising in price at breakneck speed in recent months . Prices for this literally golden product in the Russian Federation have soared by more than 40% since the beginning of the year, and in some regions the increase was 60-70%.
Calm on the foreign exchange market
The slowdown in inflation this year is partly due to the stabilization of the exchange rate.
Again, traditionally for crises, in 2022 the hryvnia came under strong pressure. From the first day of the great war, the National Bank of Ukraine (NBU) froze the official exchange rate at 29.25 hryvnia/dollar, but in July was forced to increase it to 36.6 hryvnia/dollar, since the cash rate by that time turned out to be significantly higher. At times, the dollar on the “black” market cost 43 and even 45 hryvnia, and last year the rate ended around 40 hryvnia/dollar.
But in 2023, stability reigned in the foreign exchange market. Since February, the rate began to fall and, in the end, froze in the corridor of 36-38 hryvnia/dollar.
The current situation seemed so stable to the National Bank that, starting October 3, it decided to abandon the fixation of the dollar-hryvnia exchange rate and introduce a regime of controlled exchange rate flexibility. This is not yet the floating exchange rate system that was in effect before the war, but the NBU exchange rate is now again set based on the results of trading on the interbank foreign exchange market.
In December, however, the dollar began to grow again , but its rate never crossed the 38 hryvnia mark.
The stabilization of the foreign exchange market and slowdown in inflation rates also prompted the regulator to reduce the discount rate.
In mid-2022, when it became clear that the hryvnia was collapsing and prices were rising rapidly, the NBU sharply increased the rate from 10% to 25% per annum. This rate remained, despite criticism from experts and businesses, until the end of July 2023, when the regulator carefully lowered it to 22%.
In mid-September there was another small decrease - to 20%, and at the end of October - a more significant decrease - to 16%. Since December 15, the discount rate in Ukraine has been set at 15%.
Ironically, by the end of the year the interest rate in Russia turned out to be even higher than in our country, although in the summer in Ukraine it was three times higher than in Russia. If in July the rate of the Central Bank of the Russian Federation was only 7.5%, then in December it was raised to 16% in several steps. The Bank of Russia is forced to do this in order to restrain the growth of the dollar, which is constantly trying to break out of the “flags” set at around 100 rubles.
Year of the Energy Engineer
There is probably no other area of the economy that impacts our daily lives like energy. And our enemy understands this very well.
Since the fall of 2022, the Russians have carried out massive attacks on Ukraine’s energy infrastructure, and this trend has fully continued throughout the first months of 2023.
Due to the shelling, the country was periodically plunged into darkness due to both planned and unscheduled power outages, which could last for several hours, and in some cases, for several days.
The damage from such actions to the army of the aggressor country turned out to be colossal.
“ More than 1,200 missile and drone attacks were carried out on energy facilities in Ukraine, ” Vladimir Omelchenko, director of energy programs at the Razumkov Center, tells Apostrophe. – As a result, more than 45% of transmission capacities were damaged or destroyed, and more than 50% of thermal generation capacities were lost. Also, more than 10 gigawatts of power ended up in the occupied territory .”
However, domestic power engineers managed to restore most of the damaged energy facilities in the spring-summer period. In addition, fortifications and defensive structures were erected on many of them.
“ However, due to the destruction, we entered the winter without power reserves ,” says Vladimir Omelchenko. “ Therefore, during periods of peak load, the network may experience power shortages .”
In November and December, when it became significantly colder and the nights became longer than the days, fortunately, there were no blackouts. But it is impossible to say now what will happen in the remaining months of winter.
In the context of the enemy’s strategy to destroy the Ukrainian energy sector, one cannot help but recall an event, the consequences of which we will probably not fully understand for a long time.
We are talking about the blowing up of the Kakhovskaya hydroelectric power station dam by Russian occupiers on June 6, 2023. It caused not only the complete destruction of one of the largest power plants in Ukraine, but also caused a colossal environmental disaster.
In addition, the drop in water level in the Kakhovka Reservoir has called into question the cooling of the reactors of the occupied Zaporozhye Nuclear Power Plant, which is a constant source of risk of a nuclear disaster.
At the same time, at the Zaporizhia NPP itself, Russians, including seemingly professionals from Rosatom, behave completely irresponsibly, which only increases the risk of an accident at the plant.
Autogas went into the lead
Before the Russian invasion, Ukraine was heavily dependent on fuel supplies, primarily diesel fuel and autogas, from the Russian Federation and Belarus. After February 24, 2022, this supply channel closed, causing at least a temporary fuel shortage. In addition, due to enemy shelling, our own fuel production actually stopped.
Already in the second half of last year, the automobile fuel market was stabilized due to rhythmic spacers from Europe. In 2023, the situation in this market also remained stable.
In the middle of the year, a significant event occurred in this area - from July 1, taxes on fuel returned to pre-war levels - VAT on all types of fuel increased from 7% to 20%, the excise tax on gasoline increased from 100 euros to 213.5 euros per 1 thousand liters , for diesel - from 100 euros to 139 euros per 1 thousand liters (the excise tax on autogas was increased to 52 euros per 1 thousand liters in September 2022).
Such a significant increase in taxes should have led to an equally significant increase in prices, but this did not happen. Of course, an increase in the cost of fuel at gas stations could be observed soon after the increase in excise taxes and VAT, but after some time the prices stabilized and even went down. In December, prices simply collapsed. As a result, A-95 gasoline cost 52 hryvnia/liter at the beginning of the year, and now costs about the same. And diesel has even fallen in price over the year – from 55 to 52 hryvnia per liter.
“ The preservation of stability in fuel prices was partly facilitated by the decline in world oil prices (the drop over the year amounted to approximately $10 per barrel - “Apostrophe”) ,” Naftorynka expert Alexander Sirenko told the publication. “ In addition, at the beginning of the year, market participants included an inflated profit in the price, which allowed them to partially compensate for the increase in excise taxes by reducing it .”
With liquefied automobile gas everything was a little different. If for most of the year prices for it remained at the level of 25-26 hryvnia per liter, then in November its average retail price soared to almost 37 hryvnia .
“ The reason was that traders do not have a significant supply of gas, ” explains Alexander Sirenko. “ Therefore, the blockade of Polish carriers caused a shortage and a sharp rise in prices .”
However, traders quickly established alternative routes for liquefied gas supplies, and prices soon went down. As of the end of December, autogas at gas stations on average cost about 31 hryvnia per liter.
Border is locked tight
The blocking of the border, which Polish road carriers began in November, was an extremely unpleasant surprise for Ukraine. And the damage from this protest goes far beyond automobile fuel, which, as we know, enters the country entirely through the western border.
The total losses for the Ukrainian economy from blocking the border have already exceeded $1 billion.
The protesters either expand the geography of their action, or narrow it, from time to time they suspend the blocking of one or another checkpoint, but this does not fundamentally solve the problem - Polish carriers want their Ukrainian colleagues to receive permits to enter the EU territory again, as before the war, against which our drivers categorically advocate. Moreover, the permit system after the Russian invasion was abolished at the level of the European Commission, which today has no plans to return it.
The governments of Ukraine and Poland are working to solve the problem of blocking the bilateral border, but, in any case, this will be the subject of more serious and lengthy negotiations in the context of our country’s accession to the European Union.
We will also have to resolve the issue of exporting our products, in particular agricultural products, with our neighbors, as well as with the EU in general.
At the height of the border blocking campaign, Polish Deputy Minister of Agriculture Michal Kolodziejczak said that his country could take such a step as banning the import of Ukrainian goods into its territory for 20 years after Ukraine joins the European Union.
Even if this is just the personal opinion of an official, and not the position of the Polish government, we must understand that in the EU, both at the level of the entire bloc and in each country, administrative and financial measures to protect agricultural producers are very strong, and therefore there is a certain transition period for our agricultural products is quite possible.
Battle for the Harvest
How serious the problem of protecting the agricultural sector is for the European Union can be judged by the events of the spring of 2023, when Poland, as well as Hungary and Slovakia, banned the import of Ukrainian agricultural products (Romania and Bulgaria also insisted on a similar ban).
For our country, these bans were very painful, since, in fact, transit supplies of grain to world markets also fell under them.
In July, Russia withdrew from the so-called “grain deal” , thanks to which agricultural products were exported from Ukraine, and threatened to attack any ship sailing through the Black Sea to a Ukrainian port. In this regard, for some time, the export of grain and other goods by land, across the western border, became for Ukraine almost the only way to maintain exports.
However, in the second half of the year, Ukraine, together with its allies, laid out a “sea corridor” for the transportation of domestic products - without Russia’s participation. Moreover, by October the volumes of supplies through this corridor reached the level that was during the “grain deal”, and by December they even exceeded it.
First Deputy Minister of Agrarian Policy and Food Taras Vysotsky said in an interview with Apostrophe .
“If we talk about grains and oilseeds, which form the basis of domestic exports, 22 million tons of wheat, almost 6 million tons of barley, and up to 30 million tons of corn were harvested. The rapeseed harvest amounted to 4 million tons, soybeans - 4.7 million tons, and sunflower - 13 million tons,” said the deputy minister.
According to him, 20-25 tons of agricultural products are enough for Ukraine’s domestic consumption; accordingly, the export potential of this crop is 55-60 million tons.
New Year's jitters
Export is the country's earnings, and in foreign currency.
However, it is no secret that since the beginning of the big war, the main source of money for Ukraine has been foreign financial assistance. It is expected that by the end of 2023, our country will receive approximately $45 billion in such assistance.
True, delays are already beginning with the allocation of funding . Thus, the US and the EU cannot yet agree on financial assistance for our country. Although this applies to 2024, tranches calculated for the end of this year are also arriving with a delay.
At the end of the year, Ukrainians also experienced several anxious days due to a large-scale disruption in the work of the largest mobile operator, the Kyivstar company . As a result of an attack by hackers associated with the Russian FSB, a significant part of the operator’s virtual infrastructure was destroyed. For several days, Kyivstar subscribers could not use mobile communications, the Internet, or other company services. Also, due to the failure, difficulties arose in the operation of some terminals and ATMs of financial institutions, including the largest - PrivatBank and Oschadbank.
However, quickly enough, especially considering the scale of the attack, the work of Kyivstar was restored. And let's hope that the protection of the mobile operator's infrastructure has been strengthened. After all, what does not kill us makes us stronger. And this, perhaps, applies to the entire Ukrainian economy, and Ukraine as a whole.
