As of May, Ukraine's real GDP growth has already reached plus 2.4% compared to minus 29.1% at the end of 2022, with inflation declining and foreign exchange market conditions improving. This is stated in an IMF document released following the first review of the Extended Fund Facility (EFF) program for Ukraine, Ukrinform reports.
The latest data analysis indicates a more stable economic activity than at the time of the EFF program approval, the document says.
The real GDP growth rate in 2022 was revised upward (from minus 30.3% to minus 29.1%). This was due to stronger dynamics in the fourth quarter of last year, when households and companies in Ukraine adapted better to the power outage.
In the first quarter of 2023, GDP growth increased to a plus 2.4%, indicating a significant recovery in economic activity, as well as further adaptation of businesses and households during Russia's war. Surveys of enterprises confirm the improvement in sentiment, the document reads.
On the other hand, the destruction of the Kakhovka dam is mentioned as an unforeseen risk, which could affect growth through the loss of arable land, migration, and disruption of industrial facilities, including due to lack of water and electricity.
Ukraine's inflation rate as of May 2023 decreased to 15.3% year-on-year from 26.6% at the end of 2022. Core inflation (excluding changes in food and electricity prices) also fell to 15.6% in May from 22.6% at the end of 2022. According to IMF, this reflected efforts to optimize food and fuel supplies, the rapid recovery of the energy sector after Russia's attacks, and the strengthening of the hryvnia cash exchange rate.
It is noted that electricity tariffs for households will increase by over 60% from June, but this will have little impact on inflation due to the low base.
Conditions on the foreign exchange market in Ukraine have improved due to continued external inflows and seasonal factors, in particular, sales of foreign currency by agricultural producers. The difference between the official and cash exchange rates has stabilized at around 2-4% since March. The National Bank of Ukraine's monthly net foreign exchange sales stabilized at USD 1.6 billion in March-May, compared to USD 2.9 billion in winter.
IMF pointed to a deterioration in the budget deficit compared to last year, as higher revenues were more than offset by higher expenditures in the first four months of 2023. In this regard, it is noted that the cumulative total budget deficit reached about UAH 185 billion in the first four months of the year, compared to UAH 130 billion in the same period last year.
The Ministry of Finance of Ukraine expected economic growth to increase to 3% in 2023.
