Ukraine’s budget deficit can reach 26% of GDP in 2022 because of the war
Ukraine’s state budget deficit could reach 16-26% of GDP in 2022, Dragon Capital investment company predicts. It estimates an average monthly budget deficit at $4 billion during the fighting and allows the gap to narrow to $2.5-3 billion “with a sustainable ceasefire agreement reached.”
The implementation of the state budget is complicated by a drop in tax revenues, as Ukraine’s economy is facing a major decline because of Russia’s invasion.
According to the company’s preliminary estimates, in March 2022, real GDP fell by 45% year-on-year. The territories in the east and south of Ukraine, which remain occupied by Russian troops by mid-April, generated approximately 12% of GDP in pre-war times. Economic activity in the rest of the country remains subdued, although it is gradually recovering.
The investment company predicts that if fighting continues within the territory occupied by Russian troops by mid-April, and the risk of missile strikes in the rest of the territory remains high, the Ukrainian economy will shrink by about a third and is unlikely to grow next year.
At the same time, a sustainable ceasefire in the coming months will accelerate economic recovery and reduce the annual decline in GDP to minus 25% year-over-year, followed by a 6.5% growth in 2023, analysts believe.
If the ceasefire agreement is accompanied by the opening of the Black Sea to the commercial shipping, Ukraine will be able to increase export volumes to 70% of the pre-war level. In this case, the fall in GDP this year will be 22%, and economic growth next year could reach 10%.