Ukraine lived for another year in the context of the global coronavirus pandemic, which has significantly redrawn the economic map of the world. The past year brought only a slight recovery of the lost positions, and the new 2022 promises to be no less difficult.
So Ukraine met 2022, so in the first hours of the holiday I would like to recall the main economic events of the past 12 months.
As in the previous year, our country was forced to live in the midst of the coronavirus pandemic. Its main difference was that the inhabitants of the planet received hope to return to their former life in the form of vaccines against COVID-19. In Ukraine, the first vaccination against coronavirus was made back in February 2020, but our compatriots were clearly in no hurry to defend themselves, because for a long time the country was at the back in the ranking of states in terms of vaccination level.
The result was two last year’s waves of the pandemic – in spring and autumn, with the second in many ways reminiscent of the events in Italy or Spain in the spring of 2020. In November, 700-800 Ukrainians died from the coronavirus every day, while in the spring this figure only approached the mark of 500 deaths per day.
In such conditions, the Cabinet of Ministers was forced to tighten restrictions for the unvaccinated. A list of professions has appeared, whose representatives are required to be vaccinated against COVID-19 for further work. Those who shy away have no legal opportunity to use public transport, move between regions, and visit most public places.
Now the country has reached the figure of more than a million vaccinations weekly, and more than 40% of fellow citizens have already received the full course of vaccination. The Cabinet of Ministers wants to vaccinate at least 70% of the population, which will help not to stop the economy.
“Thanks to the launch of free and affordable vaccinations, we no longer plan to introduce total lockdowns. A business can operate even in the“ red ”zones if its employees are 100% vaccinated,” Prime Minister Denis Shmygal promised at the end of December.
At the same time, the head of government added that the mask regime will remain with us for a long time – at least two years, and maybe more, because the vaccine does not give a 100% guarantee against infection, and the virus continues to mutate.
Timid economic recovery
The main disappointment of the past year can be confidently called the failed recovery of the domestic economy after its fall by 4% in 2020.
At the same time, at the beginning of the year, forecasts promised almost 5 percent growth, but in reality this was not achieved. According to the Ministry of Economy, in 2021 the gross domestic product grew by 3.4%. That is, in fact, Ukraine has not even reached the level of the pre-crisis 2019.
Against this background, another trend of the past year looks threatening – the growth of consumer inflation, which already exceeds 10%.
Compared to last year, prices for a number of important products have risen significantly. Thus, sunflower oil rose in price by 47%, sugar – by almost 40%, eggs – by 25%, bread – by 18%, meat – by 13%, vegetables – by 12%. Fruits have fallen in price – by 6%. Tariffs for communal apartments rose by 10%, and this growth could have been much more significant if the central and local authorities did not freeze tariffs for heating and hot water.
To combat inflation, the National Bank of Ukraine began to gradually increase its discount rate and has so far stopped at 9% per annum. It is noteworthy that until March 2021 the discount rate was kept at 6% for almost two and a half years. The NBU stressed that in case of further growth of inflationary risks, they are ready to further increase the key rate.
Raw slides
It must be said that in the first half of the year, the forecasts for recovery were not so unfounded. The Ukrainian economy, oriented to the export of raw materials, took advantage of the situation on the world markets, where there were very high prices for Ukrainian metals, agricultural products, and chemical products.
But the happiness did not last long – in the second half of the year, European gas prices began to confidently creep upward and break every conceivable record. During these surges, the cost of a thousand cubic meters of blue fuel even exceeded $ 2,000.
For Ukraine, which imports a third of its gas consumption, this was a real shock. The problem was aggravated by the state holding Naftogaz of Ukraine, which did not manage to pump enough raw materials into the storage facilities at pre-crisis prices. So far, the government promises to keep the tariffs for gas and heat for the population at the same level until the end of this winter, and no one seems to know what will happen next.
However, businesses already have to buy gas at unaffordable prices. It is not surprising that this threatens many industries with at least losses. Representatives of the confectionery industry have already temporarily suspended their activities, and the bakeries turned to the country’s leadership with a request to supply them with fuel at a social price.
The dairy industry has also been in an unprofitable state for several months, and domestic poultry farmers and producers of greenhouse vegetables are seriously thinking about stopping production. Hard times have come for the chemical industry, where the price of gas makes up the lion’s share of the cost of the final product.
At the same time, industrial production even grew by 0.4% in 2021. But this is explained by the fact that in 2020 this figure fell by 5.2%.
Exchange rate and government finance
The consequences of unfulfilled expectations about the economic recovery were the actions of the Ministry of Finance to patch holes in the state treasury with the help of borrowings. As a result: in 2021, Ukraine’s national debt grew by more than $ 3 billion and exceeded $ 94 billion.
This result could have been even worse if Ukraine had not received substantial financial support from the International Monetary Fund and the European Union. First, in August, the IMF allocated $ 2.7 billion in irrevocable aid, and in the fall our country received another $ 700 million from its main creditor under the current stand-by lending program. Also, a tranche from the EU in the amount of EUR 600 million arrived in time.
Foreign financial assistance helped to maintain macro-financial stability, moreover, the hryvnia exchange rate has generally strengthened during 2021. If in early January the official exchange rate of the national currency reached UAH 28.4 / $, then it ends this year at around UAH 27.3 / $, having strengthened by almost 4% over the year. At the same time, the 2021 budget set the rate at UAH 29.1 / $.
In November, the hryvnia even strengthened to UAH 26 / $, but such an increase was short-lived, and against the background of alarming news about a possible armed aggression by the Russian Federation, the Ukrainian currency returned to levels above UAH 27 / $.
“Big construction”, the launch of the land market and other victories
Summing up the results of 2021, one cannot but recall some of Ukraine’s economic victories, although there were not as many of those as we wanted.
The main driver of the economy, paradoxical as it may sound, was the presidential program “Big Construction”. As economists note, the real GDP of Ukraine in 2021 grew at about 3.1%, of which 2.6% was provided by the state program for the restoration of infrastructure. Such figures should be alarming, since the government announced that it expects an inflow of foreign investment, which was supposed to become the engines of growth.
As for the results of the “Big Construction”, last year it was possible to restore and build over 7 thousand km of roads. By the way, more than UAH 140 billion have already been allocated for the restoration of road infrastructure in 2022. Also starting this year, the program will begin to modernize the country’s railway infrastructure.
The most important event of the past year, without a doubt, is the launch of the agricultural land market. And although so far only natural persons-citizens of Ukraine can acquire it, there are already the first encouraging results. Ukraine has already signed 61 thousand contracts for the purchase and sale of land plots. The average price of a hectare of land is about 38 thousand UAH, but the Cabinet of Ministers expects that in two or three years it will grow to 55-60 thousand.
Confirmation of the value of the domestic land is that in 2021 Ukraine harvested a record in the history of independence in the amount of 106.6 million tons: grain and legumes harvested more than 84 million tons, and oilseeds – 22.6 million.
Among the victories is the launch of the affordable mortgage lending program photo ua.depositphotos.com
Also in 2021, Ukraine and the EU finally signed an agreement on a common aviation space, which will help reduce the cost of air tickets, and, consequently, the development of tourism and trade.
Among the victories is the launch of an affordable mortgage lending program, according to which Ukrainians have already signed 1,300 agreements worth more than UAH 1.1 billion.
In the past year, it was possible to pass the laws necessary to stimulate the development of industrial parks, which can potentially add to the growth of the national economy. Also, preparations for the creation of a free economic zone for IT-companies “Diya.City” have been completed, and it is planned to fully launch it in January.
Hope for 2022
For our country, 2022 will be in many respects defining.
Ukraine will continue to live in a pandemic, and its negative effect will exacerbate the energy crisis.
To reduce dependence on expensive gas, the government plans to significantly increase its own fuel production. Also in 2022, it is planned to launch a large-scale program of thermal modernization of buildings in order to reduce gas consumption for heating residential buildings and social infrastructure. In the first year of the program, they want to modernize 5 thousand high-rise buildings, but Ukrainians better not wait for manna from heaven and start introducing energy-saving technologies themselves.
Another significant challenge will be the geopolitical confrontation with Russia, which has already demanded guarantees from the United States that Ukraine will not join NATO and is clearly looking for a reason for a full-scale invasion.
In 2022, an increase in rates in international borrowing markets is projected. This prospect does not bode well for Ukraine, given the state budget deficit of UAH 200 billion, the need to service a significant national debt and purchase expensive gas.
Growth is also expected to slow in the world’s leading economies, including China, our largest trading partner. This could negatively affect domestic exports.
Economists expect an intensification of the struggle for labor resources between countries. By the way, in incomplete 2021, more than 600 thousand Ukrainians left the country and did not return, which is a record for the last 11 years. The authorities should seriously think about changing this trend so as not to waste the entire labor potential of the country.
Despite the “thunderclouds”, the Ukrainians are expected in 2022 and good news. The government plans to finally launch a funded pension system. In addition, mandatory indexation of regular pensions will take place in March. Also this year there will be an increase in the minimum and average wages.
The National Bank forecasts insignificant, but still growth of the Ukrainian economy at the level of more than 3.5%. Inflation should slow down to 6.6%, and the average annual rate of the national currency will be UAH 27.8 / $.
It should be added that the patron of 2022 will be the tiger, an animal that is not afraid of dangers and is ready to take risks. Astrologers say that it is in this year that you can decide on drastic changes.
It remains to wish the Ukrainians tiger activity and determination, which will help to catch more than one prey during these twelve months. Happy New Year!
Dmitry Schwartz
