Kiev 'launches' economic campaign, unbelievable surprise, not afraid of public debt of 100% GDP

GDP growth in September 2023 compared to September last year in Ukraine - a country engulfed in a military conflict with Russia - was about 9.1%.

Cứu tinh và thủ phạm đẩy Ukraine vào cuộc khủng hoảng nợ quốc gia?. (Nguồn: ubn.news)

Russia-Ukraine conflict: Kiev 'launches' economic campaign, unbelievable surprise, public debt of 100% of GDP is not a concern. (Source: ubn.news)

Thus, the Ukrainian economy continues to recover despite the more than year-long conflict with Russia. Thanks to strong growth in September, the country's growth in the period from January to September 2023 is estimated at 5.3% compared to the same period last year.

According to the Ministry of Economy of Ukraine, in September, most key economic activities had positive results.

“I would like to note that, thanks to government programs to stimulate business development, economic activity is recovering in many production sectors. In general, the production sector, which suffered heavy losses and damage, is gradually recovering,” said First Deputy Prime Minister and Minister of Economy of Ukraine Yulia Svyrydenko.

The service sector also made a significant positive contribution to GDP in September. This was due to a combination of factors.

First, it is the commercial services sector, which is now more digitalized and flexible in its operations, thus quickly adapting to new market conditions and needs.

Second, the service sector also includes public administration and defense – sectors that are prioritized for funding during periods of military conflict with Russia.

Minister Svyrydenko noted that in September, food processing companies achieved impressive production growth. This result was achieved against the background of an increasing base of raw materials from agricultural production and the formation of new supply routes.

Positive momentum was also seen in the machine building and construction materials industries, where growth was driven by reconstruction projects, including the Ukrainian government's eHome program. This was followed by unexpected growth in the mining industry, which was explained by the goal of increasing coal and gas reserves for the winter.

At the same time, the “campaign” to repair power generation facilities and the grid, which was permanently damaged by fighting in some areas and unusually warm weather conditions, “favored” increased production while limiting electricity consumption (compared to September 2022).

Security issues, destruction of production facilities at some enterprises (mainly in the east) and logistical constraints for exporters remained the biggest constraints on Ukraine's economic growth in September, according to the Ukrainian Ministry of Economy.

According to forecasts, Ukraine's GDP growth rate over the past 9 months, combined with a number of favorable factors, is the basis for Kiev to set growth expectations for 2023 at 4-5%.

Previously, within the framework of the annual meeting of the World Bank Group (WB) and the International Monetary Fund (IMF), these leading financial institutions expected that Ukraine's GDP would exceed forecasts thanks to efforts to stabilize the macroeconomy and restore economic activity. The IMF expected Ukraine's growth rate in 2023 to fluctuate between 1% and 3%.

In particular, the IMF Representative also expressed confidence in the implementation of the international support package worth 115 billion USD for Ukraine in the next 4 years, as committed by the IMF and member countries.

In addition, there is an incredible surprise in the Ukrainian economy at the moment - “there is no risk of default despite the significant increase in Kiev’s public debt”. According to Ukraine-based financial expert Serhiy Fursa, due to the constant need for additional borrowing, Ukraine’s public debt will certainly increase both in absolute terms and in the size of the national GDP.

“In normal times, I would say this would be a problem. We are used to living with a debt of around 50-60%. But in an ongoing military conflict, which requires huge resources, we cannot do anything about it. However, even by the end of next year, public debt will only reach around 100% of GDP. And this is less than the accumulated debt of some countries in southern Europe,” said financial expert Serhiy Fursa.

No significant debt growth would cause a country to default, the expert said. For example, Sri Lanka – a country currently negotiating a debt restructuring – “The IMF program… with complex reforms… and the goal is to achieve debt at 95% of GDP in 10 years.”

That is why, financial analyst Serhiy Fursa concludes, in the context of the ongoing military conflict, Ukraine's economy is still doing much better than Sri Lanka's.

At the same time, he reiterated that most of the financial assistance Ukraine receives from international partners, including financial assistance from the United States, is grants that do not have to be repaid.

As for the loans received from the EU, although they need to be repaid, they will not become a burden for the country. Because the aid is given to Ukraine on preferential terms - low interest rates for a period of 30 - 35 years. Meanwhile, the first 10 years will be written off by other EU spending.

Moreover, for some reason, according to the expert, “it seems that in the next 10-15 years, these debts will no longer be a problem for Ukraine.”

Previously, the IMF estimated that Ukraine's total public debt would increase to 88.1% of GDP by the end of 2023, increase to 98.6% next year and peak at 100.7% in 2025, after which it would begin to gradually decline.

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