What Do We Know About Ukraine’s Economy?

Ukraine is the second-largest country by area in Europe after Russia. It is an emerging free market economy categorized as a ‘lower middle-income’ by the World Bank. The country is well known for its black “chernozem” soil, and it is often dubbed as the land of “brains and grains.” 

Here’s an overview of the Ukrainian economy.

The 1990s was challenging for the Ukrainian economy like a majority of countries that emerged post dissolution of the U.S.S.R. In its initial years as an independent nation, almost all economic indicators reflected a broken state of its economy in the form of hyperinflation, declining production and ballooning fiscal deficit.

“During the first three years following independence (1992–94), Ukraine implemented inflationary policies which resulted in a sharp depreciation of the currency (inflation peaked at 10,200% in 1993) and in a rapid decline of the economy,” reads an IMF report. “In mid–1994, the new government decided to change course and to embark on a program of adjustment and reforms, which sought to correct the mistakes of the past and liberalize the economy.”

It is estimated that Ukraine’s economy contracted annually between 9.7% and 22.7% in 1991 to 1996. Another data set shows that Ukraine’s real GDP declined by a cumulative 62.1% from 1991 to 1998. The economy was negatively impacted by the Russian default crisis of 1998.

The year 2000 marked a new beginning with the country’s GDP growing at 5.9%. During the years 2000-2004, average GDP growth was 8.4%, supported primarily by industries like steel production and food processing. The devaluation in its currency ‘hryvnia’ provided a boost to its exports, which surged by around 42% by 2004. The year also marked the Orange Revolution in Ukraine.

“Ukrainian government officials eliminated most tax and customs privileges in a March 2005 budget law, bringing more economic activity out of Ukraine's large shadow economy,” according to a report by Moody’s.

GDP growth was 5.1% from 2005-08. Ukraine was badly hit by the external shocks of the global financial crisis of 2008-09. Its GDP contracted nearly 15.1% in 2009, and the growth remained stagnant till 2013.

In addition, Ukraine experienced acute economic and security-related challenges during the period 2014-15. The conflict in the East of Ukraine and plunge in commodity prices together shook its economy, which contracted by 6.8% and 9.8% during 2014 and 2015, respectively.

The situation eventually stabilized, and its economy grew by 2.4% in 2016. During the period following the conflict of 2014 till 2019, the government carried out significant fiscal consolidation, moved to a flexible exchange rate, reformed energy tariffs and worked to bring more transparency. Ukraine grew by 2.4%, 3.5% and 3.2% in 2017, 2018 and 2019, respectively.

In terms of sectors, agriculture is an important component of its economy. Ukraine was once known as the grain basket of the former Soviet Union. Thanks to its rich soil and extensive land, agriculture contributes to more than 9% of its GDP. Today, Ukraine is the breadbasket of the European region.

According to the Food and Agriculture Organization of the United Nations (FAO), “One-third of the worldwide stock of the fertile black soils, which cover more than half of Ukraine’s arable land, a large variety of climatic zones, and favorable temperature and moisture regimes, offers attractive conditions for the production of a large range of crops including cereals and oilseeds.”

Ukraine ranks among the world’s top producers of grain crops, including wheat, corn and barley.

It is also home to rich mineral resources. The country has abundant reserves of coal, iron ore, natural gas, manganese, salt, oil, graphite, sulfur, kaolin, titanium, nickel, magnesium, timber and mercury. Ukraine ranks second for gas reserves in Europe, and the exports of goods and services contribute around 40% of its GDP. This percentage was around 52% in 2015.

In January 2022, Ukraine reported that its inflation is at a four-year high of 10.3%. The country’s National Bank raised the interest rates five times in 2021 to 9% after it cut rates in 2020 to support the economy during the pandemic. IMF has predicted that the country’s GDP grew by 3.5% in 2021 and projected the growth for 2022 at 3.6%. Ukraine’s GDP of $181.04 billion was estimated to reach $290.1 billion by 2026. However, the ongoing crisis will most likely disrupt all projections. The World Bank is preparing a $3 billion package in the coming months to support Ukraine.

Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared, and any exclusions or errors in it are totally unintentional. The data mentioned is based on reports from IMF, World Bank, and other institution such as FAO, and research papers.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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