Critical priorities in the near-term remain macroeconomic stability, provision of es- UKRAINE Key conditions and sential public services and humanitarian relief. Over the medium-term, the damage challenges to productive and export capacity and loss of human capital are expected to have last- Table 1 2021 Ukraine’s economy had weathered the ing economic and social repercussions. A Population, million 42.2 COVID-19 pandemic better than antic- major reconstruction effort will be neces- GDP, current US$ billion 200.1 ipated thanks to earlier reforms that sary, complemented by institutional, struc- GDP per capita, current US$ 4741,7 strengthened macro-fiscal and financial tural and financial sector reforms to sup- a 99.0 School enrollment, primary (% gross) fundamentals. Fiscal financing needs port private sector-led growth, but is con- a 71.8 were managed through anchoring to the tingent on substantial external financing Life expectancy at birth, years Total GHG Emissions (mtCO2e) 237.2 IFIs’ financing programs and access to on concessional terms (which will also aid Source: WDI, Macro Poverty Outlook, and official data. external markets. Although some re- fiscal sustainability). Absent this, the re- a/ Most recent WDI value (2019). forms, including banking and SOEs, were covery would be even more protracted and incomplete and potential growth re- likely to be characterized by continued mained low due to demographic head- hardship and migrant outflows. winds, low productivity and investment rates, the historic opening of agricultural land markets in mid-2021 held the promise of unleashing stronger growth in Recent developments The Russian invasion is taking a severe the agricultural sector that already con- economic and humanitarian toll, reflected tributed 40 percent of export earnings The economy expanded by 3.4 percent in in fiscal financing pressures, disruptions and one-fifth of GDP. 2021 as easing COVID restrictions sup- Following the Russian invasion on Febru- ported domestic demand, and a bumper to trade, the displacement of millions, and ary 24, 2022, Ukraine has suffered a mas- harvest offset d rags from higher global heavy infrastructure damage with poten- sive economic and humanitarian crisis. As energy prices and a faster fiscal consol- tially long-lasting macroeconomic and so- of March 31, 4mn people had become idation. The external position was rel- cial repercussions. A 45 percent GDP refugees, and 6.5mn displaced internally. atively robust, with gross reserves at With food insecurity increasing, the Gov- US$30.9 bn, and a small current account contraction is anticipated in 2022 and a ernment banned the export of grains and deficit of 1.1 percent of GDP. This re- weak recovery thereafter. Depending on other staples. To support the economy and covery was upended by the onset of war the war’s duration, the share of the popu- ease pressures on FX reserves and banks, it in February 2022, which has fully dis- lation living below the actual Subsistence imposed an emergency (including capital rupted maritime trade (this amounted to controls and banking sector restrictions) half of the total trade and 90 percent of Minimum may reach 70 percent in 2022. and announced tax deferrals, while fully grain trade), heavily damaged critical in- meeting domestic and external debt oblig- frastructure and triggered a massive dis- ations. These measures have helped to pre- placement of people. vent a macro-fiscal and financial collapse Access to external capital markets remains during wartime. closed, with Eurobond spreads peaking at FIGURE 1 Ukraine / EMBI bond spreads FIGURE 2 Ukraine / Number of persons displaced and in need of humanitarian assistance Percent Millions 60 14 12 12 50 10 40 8 6.5 30 6 4 20 4 10 2 0 0 Refugees Internally displaced Needing humanitarian Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 aid Source: Bloomberg. Latest data point from March 30, 2022. Source: UNOCHA and UNHCR. Latest data point from March 30, 2022. MPO 1 Apr 22 over 50 percent in early March. A large fis- prices and the introduction of price caps After a significant widening, the non-pri- cal financing gap has opened amid a rapid- on essential consumer goods may restrain mary fiscal deficit is expected to narrow ly widening fiscal deficit (due to growing inflationary pressures in the short term. over the medium term as gradual fis- spending needs and declining revenues) cal consolidation and cuts to non-essen- and large debt repayments. Tax revenues tial spending offset increased public in- are expected to drop sharply due to the vestment. The CA should remain con- economic impacts of the war, as well as tax Outlook strained by sizable domestic import com- deferrals announced for key business, land pression in the near term but will widen and municipal taxes and the shift to a 2 Projections, given the ongoing conflict, in 2023 and 2024 due to reconstruction- percent turnover tax. In response, interna- are subject to great uncertainty and related investment imports (amid domes- tional partners have provided substantial large downside risks. In the baseline, as- tic supply constraints). funding through grants, loan guarantees, suming that war continues for several The poverty and social impacts of the and currency swap lines alongside major more months (albeit remains contained war will be massive. Simulations using financing packages by the IMF, EU, World to the geographical areas where it is the most recent macroeconomic projection Bank and some bilaterals. Bond spreads currently occurring), a 45 percent GDP show that the share of the population have since dropped 15 percentage points contraction is anticipated in 2022. This with incomes below the actual Subsis- to just above 30 percent. is predicated on massive declines in im- tence Minimum (the national poverty Compared to the 2014-15 crisis, the bank- ports and exports given trade disrup- line) may reach 70 percent in 2022, up ing system is more resilient but faces tions, a collapse in public and private from 18 percent in 2021. In the absence heightened operational, liquidity and sol- investments and a large drop in house- of a massive post-war support package, vency risks. In addition to capital and ex- hold spending reflecting the large dis- this indicator would still be higher than change controls, the central bank has es- placements of people, loss of incomes 60 percent by 2025. Based on the interna- tablished a new liquidity facility and in- and livelihoods. In coming years, a ma- tional upper middle-income poverty line troduced regulatory forbearance measures jor reconstruction effort is expected to (US$5.5 a day), poverty is projected to in- to support financial stability. FX reserves push growth to over 7 percent by 2025 crease to 19.8 percent in 2022, up from stood at US$27.5 bn (3.8 months of current amid a slow restoration of productive 1.8 percent in 2021, with an additional imports as of March 1). Inflation was stable and export capacity and gradual return 59 percent of people being vulnerable to at an average of 10 percent in the 8 months of refugees. Still, by 2025, GDP will be a falling into poverty. leading up to the war; regulated utilities third less than its pre-war level in 2021. TABLE 2 Ukraine / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 3.2 -3.8 3.4 -45.1 2.1 5.8 Private Consumption 10.9 1.7 7.7 -50.0 2.5 2.9 Government Consumption -13.6 -0.7 1.8 -10.0 3.0 2.0 Gross Fixed Capital Investment 11.7 -21.3 7.6 -57.5 68.5 34.3 Exports, Goods and Services 7.3 -5.8 -10.4 -80.0 30.0 35.0 Imports, Goods and Services 5.7 -6.4 12.7 -70.0 42.0 24.0 Inflation (Consumer Price Index) 4.1 5.0 10.0 15.0 19.0 8.4 Current Account Balance (% of GDP) -2.7 3.4 -1.1 -6.8 -16.8 -15.3 a Fiscal Balance (% of GDP) -2.1 -5.6 -4.0 -17.5 -21.6 -14.6 Debt (% of GDP) 50.2 60.4 50.7 90.7 .. .. a Primary Balance (% of GDP) 1.0 -2.7 -0.5 -13.8 -16.6 -12.8 b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 2.5 2.5 1.8 19.8 18.5 17.1 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Note: Projections are as of March 28, 2022. a/ Fiscal Balance and Primary Balance are non-military balances from 2022 to 2024. b/ Calculations based on ECAPOV harmonization, using 2020-HLCS. c/ Projection using neutral distribution (2020) with pass-through = 0.87 based on private consumption per capita in constant LCU. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. MPO 2 Apr 22