Marking one year of war: Ukrainian economic successes and plugging the financing gap

by | Feb 24, 2023


Today, as we mark one year since the invasion of Ukraine by Russian forces, the condition of the Ukrainian economy and the state of its public finances remain relatively resilient despite the ongoing War. That’s the analysis from the team at  ICU, an independent multi-strategy asset management, private equity, and investment firm that specialises in the emerging, and frontier markets worldwide as they share their overview with Wealth DFM commenting:

At this milestone, it is vital to reflect on efforts made by Ukraine and the international community to ensure the economy continued to operate as well as it can under the circumstances, as well as on the challenges that are yet to come.

“The international community has made significant commitments to rebuilding Ukraine by investing in sustainable infrastructure after the war. We also anticipate significant investor interest in rebuilding Ukraine beyond infrastructure after the situation improves. Local businesses will need to rebuild their production capacities and supply chains to meet domestic demand. On top of that, many businesses will likely plan their future decisions, keeping in mind, the larger EU market perspective as trade barriers are eased in light of Ukraine’s potential EU membership. Thus, the demand for equity and debt capital will boom and come from nearly every sector of the economy. We are currently focused on assessing the potential capital needs and investment options. It’s essential to be prepared for quick fundraising when all preconditions are in place,” said Makar Paseniuk, founding partner of ICU Group.

The war’s impact on Ukraine’s economy and public finance so far:

“International financing will be critical in keeping the Ukrainian economy above the waterline. A private debt restructuring programme will need to be carefully formatted to ensure Ukraine remains a trusted and reliable borrower,” said Vitaliy Vavryshchuk, Head of Macroeconomic Research, ICU.

  • At the beginning of the war, there were fears that the economy will collapse, but it has shown great resilience.
  • Despite Ukraine’s GDP falling by about a third since the war began, the economy continues to operate in a stable manner.
  • Looking ahead, a further fall or growth is largely dependent on the intensity of fighting and resulting effects on infrastructure and people. The advent of blackouts across Ukraine, for example, have significantly halted growth but that has subsided considerably. If lengthy blackouts do not repeat, we believe GDP will increase slightly in 2023.
  • Inflation peaked at 26.6% in 2022 but it has been deemed to have been kept to a manageable rate relative to Ukraine’s neighboring countries. We forecast it to drop below 20% by the end of 2023.
  • Trade deficit surged last year due to contraction of exports and relatively stable imports. However, the larger trade gap has been mitigated by an increase in migrant remittances and intonational financial assistance.
  • The NBU reserves are now close to $30bn – higher than the pre-war level, which has allowed the institution to keep the FX markets under control.
  • One-step hryvnia depreciation in late July helped reduce imbalances but not in a suitable manner.

Credit Considerations going forward

  • Ukraine will continue to rely on international financial support given the circumstance. In 2022, Ukraine could only collect 50% of what it needed to finance the War from tax and non-tax revenues, and this ratio is unlikely to improve considerably, leaving the budget deficit at about 20% in the years to come with public debt to GDP also likely to rise to 100% in the next year or so.
  • International financing will, therefore, be critical in keeping the Ukrainian economy above the waterline. A private debt restructuring programme will need to be carefully formatted to ensure Ukraine remains a trusted and reliable borrower.
  • So far, there have been a few corporate bond restructurings since the war began. Since there have been restrictions in place in sending FX abroad with the Marshall Law imposed to avoid capital flight, the NBU are not planning on allowing principle or interest payments to be paid abroad anytime soon. ICU forecasts that it is unlikely to see a change in these policies in the next 12 months.


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