Ukraine economy is showing remarkable resilience and recent economic developments point to a gradual economic recovery in 2023, although the outlook remains highly uncertain as exceptionally high war-related uncertainty persists.
All quantitative performance criteria for end-April and structural benchmarks through end-May were met, paving the way for the Executive Board’s consideration, which would enable disbursement of about $900 million (SDR 663.9 million).
“Ukraine’s four-year EFF Arrangement, with access of about US$15.6 billion (SDR 11.6 billion) was approved on March 31, and forms part of a US$115 billion international support package for Ukraine. The EFF continues to provide a solid anchor for the authorities’ economic program, and the performance has been strong. All quantitative performance criteria for end-April and structural benchmarks through end-May were met,” Gavin Gray (Chief of the IMF Ukraine Mission) said at an online press briefing on the matter held this afternoon.
In this context, The International Monetary Fund (IMF) staff and the Ukrainian authorities have reached staff-level agreement on an updated set of economic and financial policies for the first review under the 4-year Extended Fund Facility (EFF) Arrangement. The staff-level agreement is still subject to approval by the IMF Executive Board.
“The mission met with Finance Minister Marchenko, National Bank of Ukraine (NBU) Governor Pyshnyy, and other senior public officials, and would like to thank them for the open and constructive discussions and the close collaboration that have brought us to today’s staff-level agreement,“ Gray pointed.
GDP growth between 1 and 3% expected in 2023
“In addition to the horrific humanitarian toll, Russia’s invasion of Ukraine continues to have a devastating impact on the economy. Through the winter, Ukraine faced devastating attacks on its critical infrastructure, and missile strikes continue countrywide. Despite this, the Ukrainian economy has shown remarkable resilience – economic activity in the first quarter rebounded strongly, as the energy system rapidly recovered from attacks on critical infrastructure, foreign exchange markets stabilized, and inflation started to decline decisively. A stronger recovery is expected as the economy progressively adapts to war conditions. IMF staff have therefore upgraded real GDP growth for 2023 to a range of 1 to 3 percent (from the previous range of -3 to +1 percent when the EFF was approved), although the outlook remains highly uncertain as the war continues,” IMF Ukraine mission Chief explained.
Paving the way to join the European Union
“The overarching goals of the authorities’ EFF-supported program remain to sustain economic and financial stability in circumstances of exceptionally high uncertainty, restore debt sustainability, and support Ukraine’s recovery on the path toward European Union (EU) accession. In line with the objectives set out for the first phase of the program, the authorities are taking important steps to strengthen fiscal, external, and financial stability, including adopting revenue enhancing legislation under the National Revenue Strategy, preparing a conditions-based strategy to move to a more flexible exchange rate and loosen FX controls, preparing a deeper assessment of the health of the banking sector, and continuing reforms to strengthen governance and anti-corruption frameworks, including through legislative changes,” Gra explained.
And he added: “Steady implementation of structural reforms under the program, including in governance, anti-corruption and public investment management, will strengthen institutions and lay the foundations for strong and sustained growth. They will, in particular, enhance the environment enabling recovery and reconstruction efforts, which the authorities are now initiating, and thus help foster much-needed private-sector investment. Such reforms will also help facilitate EU accession.”
Ukraine will need $14Bn for critical an priority reconstruction just in 2023, Worldbank EU Commission and UN estimates
Following the Rapid Damage and Needs Assessment (RDNA2) jointly issued by the World bank Group, the European Commission and the United Nations on 23rd March 2023, Ukraine will need $14Bn for critical and priority reconstruction and recovery investments in 2023. Meeting these needs will require $11Bn in financing beyond what the government has already addressed in its 2023 budget, including $6Bn in unfunded budget needs and another $5 billion in financing to support state-owned enterprises (SOEs) and catalyze the private sector.
The cost of reconstruction and recovery in Ukraine has grown to US $411Bn (equivalent of €383Bn), 2.6 times the country’s estimated 2022 GDP.
The estimate covers the one-year period from Russia’s invasion of Ukraine on February 24, 2022, to the first anniversary of the war on February 24, 2023. The cost of reconstruction and recovery is expected to stretch over 10 years and combines both needs for public and private funds.
The highest estimated needs are in transport (22 percent), housing (17 percent), energy (11 percent), social protection and livelihoods (10 percent), explosive hazard management (9 percent), and agriculture (7 percent). The largest proportionate increase in damages was in energy, where damage was more than five times greater than in June 2022. The geographic areas with the greatest increase in needs are frontline regions of the war: Donetska, Kharkivska, Luhanska, and Khersonska.
“Conducting the second Rapid Damage and Needs Assessment is an important element in Ukraine’s reconstruction strategy. We are grateful to the World Bank for an up-to-date and thorough analysis, which will become an important tool for us and our partners in the implementation of recovery projects – recovery that has already begun. Energy infrastructure, housing, critical infrastructure, economy and humanitarian demining are our five priorities for this year. Part of the reconstruction work has already been done, and I am grateful to our partners from the EU, the USA, and the World Bank. The amount of damage and recovery needs currently does not include data on the loss of infrastructure, housing and businesses in the occupied territories. When the defense forces release them, we expect that the data will be supplemented, and the Government will immediately begin restoration work in these territories,” said Prime Minister of Ukraine Denys Shmyhal.
