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the past few days the NBU has forbidden exchange kiosks from reporting the exchange rate, in an effort to “shield” the population from the rapidly collapsing currency.
A financial crisis is already on us. The projected funding from the international community for the second half of 2022 is about $18bn. With monthly foreign exchange interventions of about $4bn and external debt payments (principal and interest) of $3bn in the rest of 2022, more defaults are on the cards, otherwise foreign exchange reserves could decline to a dangerously low level of $12-15bn, say experts – far below the level needed to support the value of the hryvnia.
Some of that pressure has been removed after the Paris Club of sovereign creditors gave Ukraine one year delay on payments in July, but the private creditors have not been as forgiving and on July 26 the state-owned gas company Naftogaz defaulted on a $335mn bond redemption, despite having the cash to meet its obligation. The government has ordered the state-owned banks to delay their payments to “preserve cash.”
In addition to the debt another big call on the budget will be the need to buy more gas for the winter. Ukraine currently has the lowest level of gas storage in all of Europe, with the tanks only 22% full as of the last week in July. Naftogaz says it needs to buy another 5bcm of gas in an extremely tight market at an estimated cost of $7.8bn. It is not clear where the companies with find either the gas or the money to buy it with.
But there is some good news. Economic activity has begun recovering in Ukraine after a significant drop at the beginning of the full-scale invasion, according to Deputy Chairman of the National Bank Serhii Nikolaychuk. This does not mean that the GDP is growing but that the depth of the fall is decreasing he said in July.
The economy's recovery can be seen in the following indicators: revitalization of trade networks, increase in restaurant turnover, and a drop in the number of non-working businesses. In addition, exports are also gradually recovering and the end of the blockade on Ukrainian ports should make a very big difference to Ukraine’s balance of payments.
Nevertheless, NBU predicts a 2022 drop in GDP by more than a third and an increase in inflation to more than 30%. The national bank estimates that the economy will decline by 40% in the first half of this year and will end the year down by a 30-35%. At the same time, analysts of the regulator believe that the economy of Ukraine will show a recovery of 5-6% in 2023-2024. This will become possible if the active phase of the war ends and the Black Sea ports are unblocked.
The regulator expects inflation to return to the goal of 5% in 2025. According to the NBU forecast, inflation will decrease to 20.7% in 2023 and 9.4% in 2024.
7 UKRAINE Country Report XXXX 2018 www.intellinews.com