Economy of Ukraine

By | May 18, 2022

According to cheeroutdoor, the volume of Ukraine’s GDP in 2002 amounted to UAH 212 billion in national currency. (in 2000 – 175.0; in 2001 – 201.9). The total volume of GDP, recalculated in dollars at purchasing power parity (PPP), amounted to $ 185 billion. In 1999, Ukraine ranked last, 43rd place in terms of GDP per capita among European countries and non-European OECD countries participating in European comparisons. According to the UN, for 2002 real GDP per capita in Ukraine at PPP was 3816 dollars, and in general, in terms of the level of social development, determined by the human development index (population income, average life expectancy, educational level of citizens), Ukraine is at 80- m place in the world, yielding among the CIS countries to Belarus (56th place) and the Russian Federation (60th).

During 1992-2001, the real GDP of the country as a result of the transformational crisis decreased by more than 2 times. At the same time, Ukraine was able to significantly reduce inflation and the state budget deficit, ensure the stability of the national currency – the hryvnia, introduced instead of the transitional karbovanets in September 1996. 40% decreased agricultural production. In terms of the present level of the main macroeconomic indicators, the country has actually been set back decades, to the period 1968-70.

In 2000-02 Ukraine clearly showed signs of economic recovery, but growth affected only certain areas of the economy and so far does not bring tangible results on the scale of the entire society. With the growth of GDP (in 2000 – by 5.8%, in 2001 – by 9.1, in 2002 – by 4.1%), its level was only 49% of the 1990 level, and the per capita GDP indicator (taking into account the population decline) rose, according to estimates, up to 19-20% to the average similar indicator of the EU countries, i.e. remains at five times lower than in the European Union. According to the forecast of the Ministry of Economy of Ukraine, in 2003-06 GDP growth is expected by 28.3%, which, however, will not even allow reaching the level of 1990.

The problem of unemployment remains very acute: 1.034 million unemployed are officially registered (at the end of 2002), of which 690,000 receive benefits (2002). But the actual unemployment, according to international experts, is almost 3 times higher than the official level: in 2000 it reached 11.7% (according to the ILO methodology), while the State Statistics Committee of Ukraine recorded only 4.2%. In 2001-02, the official unemployment rate stabilized within the range of 3.7-3.8%, and in fact at a level of approx. 10% (according to ILO methodology). This indicates that the increase in the scale of production in 2000-02 was not accompanied by an increase in employment, since even dynamically developing sectors of the economy cannot absorb the available labor force. In general, Ukraine is characterized by a trend towards a decrease in employment: from 25.4 million people. in 1990 to 22.3 million in 1998 (peak decline in industry), 21, 3 million in 2000 and 20.9 million people. in 2001.

The achievements of macroeconomic policy in recent years have been a significant reduction in inflation and the state budget deficit, ensuring the stability of the national currency, growth in industry (since 1999) and agriculture (since 2000), which ensured the growth of real GDP.

The economy of Ukraine belongs to the industrial-agrarian type. In the structure of gross value added, industry occupies 34.4%, agriculture and forestry – 16.4%, various services – 45.2%, construction – 4%. In terms of the share in the number of employed, agriculture is somewhat ahead of industry: 21.8 and 19.9%, respectively, of total employment in all areas of economic activity. Employment is growing in the tertiary sector – the service sector, where the share of people employed is high in education, culture, art, science – 10.2%, in trade and public catering – 6.9%, in healthcare and social security – 6.5%, in housing – communal services – 3.7%. In the sphere of modern services such as financing, insurance and lending, less than 1% are employed, and in the state apparatus – 1.7%.

The country has all the industries inherent in the economy of a large European state. The sectoral structure of industry is dominated by manufacturing industries (74% by value), while mining accounts for 11%. The following have the highest share (in %): metallurgical industry (ferrous and non-ferrous) – 23, food industry and processing of agricultural products – 18, energy – 15; the machine-building complex accounts for 12, the chemical industry – 5, the textile and clothing industries – 1, and the woodworking industry – 1. The number of profitable industrial enterprises amounted to 48% of the total number of enterprises in 2002 (in 2001 – 51%).

The fuel and energy complex is developing on the basis of its own resources of coal and imported oil and gas (mainly from the Russian Federation, as well as from Turkmenistan – gas and from Kazakhstan – oil). More than 40% of the country’s fuel balance is gas, which is used by the main thermal power plants. The largest thermal power plants are Zaporozhskaya, Uglegorskaya, Krivorozhskaya, Zmievskaya, Burshtynskaya, and Pridneprovskaya. There are nuclear power plants that receive raw materials from the Russian Federation and send spent nuclear fuel there: Zaporozhye, Rivne, Khmelnitsky and South Ukrainian nuclear power plants. The Chernobyl nuclear power plant, which provided 7% of all electricity, was closed according to international agreements in con. 2000.

The high level of energy consumption in the country with the relative poverty of energy resources dictates the need to reduce the energy intensity of the economy due to its restructuring and reduce dependence on “critical” oil and gas imports. In the long-term plans, it is planned to increase the share of coal in the country’s fuel balance.

The metallurgical complex is diversified and highly developed. Ukraine ranks 7th in the world among producers of iron ore raw materials. Manganese ore and various ferroalloys (ferrosilicon, ferromanganese) are also produced. In non-ferrous metallurgy, there is a large alumina production (a plant in the city of Nikolaev, co-owned by the Russian company RusAl). Products of ferrous and non-ferrous metallurgy are of great export importance: ore, ferroalloys, galvanized rolled products, large-diameter pipes, alumina for subsequent aluminum smelting, etc. are exported. The metallurgical complex provides the main share of foreign exchange earnings. Ferrous metallurgy enterprises are located in the Azov region (Mariupol), Donbass (Donetsk, Alchevsk, Enakievo, Makeevka), Dnieper region (Zaporozhye, Dnepropetrovsk, Krivoy Rog, Dneprodzerzhinsk).

In mechanical engineering, the most developed production of agricultural machinery and vehicles, instrumentation and machine tools. Tractors, tanks, turbines, ships of various types, freight cars and much more are shipped to different countries. Aircraft are designed and manufactured in Ukraine (the most famous of them are An-2, An-22 “Antey”, An-32, An-124 “Ruslan”, An-225 “Mriya”, An-74), aircraft engines. Aircraft of the Antonov brand are also being built at factories in the Russian Federation and Poland.

Mechanical engineering centers – Kharkov, Kyiv, Donetsk, Lugansk, Kramatorsk, Dnepropetrovsk, Nikolaev, Lvov, Zaporozhye, etc.

Thanks to the raw material base, the chemical industry is also developed. The main centers are Lisichansk, Cherkassy, Odessa, Kyiv, Kalush, and others. A significant part of the industry is defense industry, where structural adjustment and conversion processes are currently underway. The building materials industry is represented by cement, glass, ceramic, non-metallic building materials, and asbestos-cement industries.

The food industry has approx. 2.5 thousand enterprises of various profiles and forms of ownership. They produce a total of approx. 3 thousand items. The main branches of the processing and food industries are sugar, alcohol, meat, dairy, flour and cereals, and confectionery. Foreign capital is active in the food industry of Ukraine, numerous joint ventures have been created, modernization is underway on the basis of imported technologies.

Crop production predominates in the country’s agriculture. The basis of grain farming is the cultivation of winter wheat, corn, barley, winter rye, buckwheat, and millet. Industrial crops include sugar beets, sunflowers, fiber flax, hops, and tobacco. The country occupies one of the leading places in Europe in sugar production. Horticulture, viticulture, and the production of essential oil crops are developed in the Crimea (rose, lavender – for the perfume industry). Two trends are observed in agro-industrial production today: a decrease in production volumes in large public sector farms and an increase in its private small farms. Ukraine has always been and remains a major exporter of agricultural products. Exports include cereals, sugar, legumes, dairy and meat products, vegetables, vegetable oil and more. In order to increase the pace of trade in agricultural products, expand the possibilities of its export, Ukraine takes an active part in the creation of the agricultural market of the CIS countries. Negotiations are underway to join the WTO.

The transport complex of Ukraine includes railway, automobile, sea, river, aviation and pipeline. It plays the role of the “circulatory” system of the country’s economy. The total length of highways is 172.6 thousand km, including those with a hard surface – approx. 163.9 thousand km, railways – 22.8 thousand km. A developed network of roads and railways provides communication between the regions of Ukraine, between the neighboring countries of the CIS and Eastern, and then Western Europe, between the industrial centers of the Russian Federation and the Black Sea ports. The total length of river navigable routes is 3700 km. The navigable lower reaches of the Dnieper provide a connection between the south of Ukraine and the central part, the lower course of the Danube provides access to the Danube-Main-Rhine system. An important role is played by the Black and Azov Seas, especially the Black Sea, which should become a transit zone between Europe and Asia. The largest ports: Odessa, Ilyichevsk, Nikolaev. International air transportation is organized on 105 routes with 35 countries of the world. In October 1996, Ukraine joined the TRACECA (Transport Corridor Europe-Caucasus-Asia) program, the purpose of which is to connect the transport routes of the project member countries with European transport networks. The main gas and oil pipelines from the Russian Federation and Central Asia to the countries of Western Europe pass through the territory of Ukraine. The transit position is an important economic resource of Ukraine. Every year, Ukraine earns St. $2 billion to upgrade existing pipelines and underground gas storage facilities,

The transport potential of Ukraine is quite high. The national transport network is able to ensure the intensification of the transportation of goods and passengers both in domestic and international traffic. In 2002, cargo transportation (without pipeline transport) amounted to 566.8 million tons (in total – 770 million tons), passenger transportation – 3565 million people.

The sphere of trade and services is one of the most dynamically developing sectors of the economy. Retail trade turnover increased in 2000-02 from UAH 49.6 billion to UAH 68.4 billion.

The banking system of Ukraine is two-tier, consists of the central bank – NBU (National Bank of Ukraine) and 157 commercial banks (as of January 1, 2003). The NBU determines the main directions of the country’s monetary and foreign exchange policy.

In 2002, progress was made in this area. Market stabilization was noted, the financial situation of Ukraine improved, the population’s savings in national and foreign currencies increased. The stability of the hryvnia was ensured by the tight monetary policy of the NBU, which set the goal of maintaining a low inflation rate (0.6% per year, in 2002) and consistently revaluing the hryvnia (1.2% against the dollar and 19.2% against the euro). ). The hryvnia exchange rate in 2001-02 fluctuated between 5.28-5.43 hryvnia. per dollar. The indicators of the monetization of the economy and the deposits of the population in commercial banks increased from UAH 6.7 billion. in the beginning. 2001 to 18.9 billion con. 2002. There was also an increase in bank loans to business entities up to UAH 52.2 billion. (increase by 5.5% in 2002). In 2003, the NBU lowered the refinancing rate from 11.5% to 7%. The monetary policy of the NBU has led to an increase in the population’s deposits in banks, which provides the government with significant resources for the development of the economy in comparison with loans from international financial organizations. In 2002, the IMF refused loans to Ukraine, nevertheless, the gross foreign exchange reserves of the NBU amounted to 4.4 billion dollars, having increased by 1.5 times over the year with the full fulfillment of external debt obligations. The positive indicators of the NBU monetary policy and GDP growth contributed to the increase by a number of international agencies of Ukraine’s credit rating by 1-2 levels (to the level of “B”) for long-term and short-term loans. In 2002, Ukraine’s external debt fell to UAH 42.3 billion. (7.7 billion dollars), the amount of payments amounted to UAH 2.2 billion. At the beginning 2003 the amount of public debt was approx. 30% of GDP.

Commercial banks are still weak, neither their real “weight” nor their quality level meet the needs of the country’s dynamic economic development. The total banking assets were at the beginning. 2003 30.7% of Ukraine’s GDP (in the Russian Federation – 37.6%, in the USA – 60%, in Germany – 144%), the balance sheet capital of banks – 4.5% of GDP (in the Russian Federation – 5.4%, in the USA – 5%).

The average level of deposits is 17.5% of GDP, which is typical for countries with poor populations. Among all 157 commercial banks in Ukraine, only 10 banks are classified as systemically important. Most banks (101) are small. There are 20 banks with foreign capital, incl. 7 are purely foreign. The top ten banks account for more than half of the assets, loan portfolio and liabilities of the commercial banking system, almost 3/4 of investments in securities and 2/5 of the total balance capital, 1/4 of the authorized capital. It was these 10 banks that attracted more than 1/2 of the funds of economic entities and 2/3 of all deposits of individuals. There are many problems in the banking sector, the solution of which is urgent. Normal development is hindered by objective and subjective factors: poverty of the population, the lack of an appropriate system for guaranteeing bank deposits, the high proportion of unprofitable enterprises in the country’s economy, the colossal (by world standards) share of cash circulation – almost 2/5 of the entire money supply, St. UAH 26 billion (as of March 2003). Thus, in Ukraine there are almost no relatively stable sources of resources for commercial banks, at the same time, reserve requirements for banks are higher than in EU countries – there the reserve rate is 0-2%, and in Ukraine – from 0 to 14% (in end 2002), there are problems with the liquidity of collateral, etc.

Commercial banks (CBs) for the most part did not turn their faces to the real sector of the economy, which is largely due to both their unpreparedness to provide large and long-term loans, and the instability of the functioning of industrial enterprises, the lack of real transformations in the economy, and consequently, high credit risks. CB lending rates are still almost three times higher than the NBU discount rate. The shortcomings of the banking system sharply raise the question of the need to reform it. The NBU proposed a “Comprehensive Program for the Development of the Banking System of Ukraine for 2003-05.”

The state of public finances has improved relatively since 2000 in Ukraine. The consolidated budget in 2002 was reduced to a surplus of UAH 1.7 billion. (in 2001, the deficit was UAH 1.3 billion, or 0.6% of GDP). However, the formal excess of state budget revenues over expenditures was achieved only by pursuing a tough budgetary policy of the Ministry of Finance and sequestering the budget in the end. 2002. This is due to the underfulfillment of the income plan: in 2002 it was only 93.1% fulfilled, and the expenditure side of the budget after the sequestration was only 85.2% fulfilled. The main reason for the poor filling of the budget was the much smaller than planned budget revenues from privatization. In 2001, with a plan of UAH 5.9 billion. receipts of funds amounted to UAH 2.3 billion, and in 2002, with expected privatization revenues of UAH 5.85 billion. they amounted to only 606 million hryvnia. Experts attribute this to a new wave of “shadow privatization” and lawsuits against privatized enterprises. The failure of the privatization program, the slowdown in business activity, the revaluation of the national currency and the need to reduce the budget to a surplus in accordance with the requirements of the IMF led to the subsequent sequestration. As a result, a surplus of 0.8% of GDP was achieved (according to the methodology of the Ministry of Finance of Ukraine, 1.7% – according to the methodology of the IMF). In general, low state budget revenues against the backdrop of economic growth in recent years indicate serious macroeconomic disproportions.

The forced reduction in public spending leads to the preservation of budget debt to the social sphere (non-payment of wages, benefits) and to the private sector of the economy (the amount of overdue state debt to Ukrainian exporters for VAT payments has reached UAH 2 billion). These negative trends pose a major threat to price stability in the Ukrainian economy. The most important problem of the government is also the lack of funds to finance economic development programs (while striving to ensure the planned budget surplus).

The need for significant repayments on external loans has a serious impact on the state of public finances. To the beginning 2003 Ukraine’s external public debt fell to UAH 42.3 billion. ($7.83 billion); in 2002, UAH 2.2 billion was paid. In 2001, the government restructured the current debt to the Paris Club of creditor countries in the amount of $580 million. In the same period, an agreement was reached to resume IMF lending in the amount of $377 million and a $250 million World Bank loan was made available to support the government’s economic program. But Ukraine failed to resume large-scale cooperation with the IMF, since the Fund and other international financial organizations require a number of conditions to be met before granting loans. In con.

According to the 2003 budget, the repayment of the principal amount on the foreign debt will amount to UAH 5.59 billion. (1.02 billion US dollars), and for domestic public debt – UAH 2.49 billion. To finance these payments U. plans to attract UAH 2.21 billion on the domestic market and UAH 6.7 billion on the external market. (1.22 billion US dollars), as well as to receive UAH 2.15 billion from privatization. Under the proactive stand-by program, the government expects to receive a loan from the IMF in the amount of $600-800 million over 3-5 years.

Despite the steady economic growth and its high rates in 2000-02, the income level of citizens remains very low. In 2001, the real wages of working citizens increased (up to UAH 312 at the end of the year), but they did not reach the estimated subsistence level (UAH 332). At the same time, the average level of all monetary incomes per family member was only UAH 183. per month. The debt to citizens for accrued but unpaid wages remained significant – UAH 3.7 billion. on the horse 2001. In 2002, wage arrears decreased to UAH 2.8 billion, and there is no pension arrears. Nevertheless, 1/3 of Ukrainian citizens are below the poverty line – their income does not exceed $30 per month. The Government adopted the document “Poverty Reduction Strategy” (2001), where the task was set to reduce the proportion of the poor in 2003 to 21.4% and ensure the growth of real incomes of the population by 6.5%. In 2002, the average salary in the public sector reached UAH 376, exceeding the subsistence level. The average cash income per capita in December 2002 amounted to 342 UAH. Nominal monetary incomes of the population increased by 20.7% by 2001, while real wages increased by 15.6%. Difficulties in filling the state budget worsened the social situation: in 2002, the debt on payments of various types of assistance to the population (benefits, etc.) increased by 11 times, reaching St. UAH 170 million (as of January 1, 2003).

The foreign economic sphere is extremely important for the Ukrainian economy, which has become quite open during the years of reforms. Since 2003, there has been an upward trend in Ukrainian foreign trade indicators after a long period of decline (since 1996). Foreign trade turnover in goods and services in 2002 reached 40.5 billion US dollars, including: exports – 22 and imports – 13.5, the trade surplus increased to 3.5 billion US dollars.

The export-import coverage ratio is 1.19 times. In the commodity structure of exports, more than 41% is occupied by products of the metallurgical complex, approx. 14% – machinery and equipment, 11.2% – food products and agricultural raw materials, 11% each – chemical industry products and mineral products (coal), the export of textiles is growing, whose share in the total volume is almost 4%. Imports are dominated by natural gas and oil – 43%, machinery and equipment account for 19%, chemical and pharmaceutical products – 11.6%. Imports of energy resources are classified as “critical imports”, given Ukraine’s own poverty in oil and gas, combined with the high energy intensity of its economy and the high share of natural gas in the total energy balance (up to 40%). The cost of annual imports of energy resources in 1997–2001 averaged 12–14% of Ukraine’s GDP, and in 2002, 17% of GDP. A dynamic item of Ukrainian foreign trade is trade in services, mainly due to the transit of gas and oil to Europe from the Russian Federation and other CIS countries. In 2002 exports of services grew by 14.4% to $4.05 billion.

The main factor behind the growth of Ukraine’s foreign trade turnover in 2001-2002 was the increase in exports to Europe. In 2002, the share of the CIS countries in the total volume of foreign trade in goods decreased from 42.5% to 38.6% entirely due to a decrease in exports to these countries, while trade with European countries increased by 19%. However, ok. 60% of Ukrainian exports of services and 20% of their imports are accounted for by the CIS countries (the Russian Federation – 57 and 16.5%, respectively). With all the changes in the geographical structure of Ukraine’s foreign trade in favor of reorientation from the ex-USSR market to Western, especially European markets, the first place in its trade turnover is occupied by the Russian Federation with a share of 28% (2002). Russian-Ukrainian trade fluctuated in 2000–03 within the limits of $11–12 billion, although it could potentially be twice as large. 2nd place is occupied by Germany (over 2 billion dollars), 3rd – the United States (1.5 billion dollars). Of the European trading partners, the most important and significant for Ukraine are also Italy, Turkey, Poland, Great Britain, Bulgaria, Hungary. From Asian countries – China (700-800 million dollars). In 2002 ok. Turkey, Italy, Germany, China, Great Britain, USA, Hungary accounted for 28% of export deliveries, and 18% for the Russian Federation. In imports, 34% of receipts were from Turkmenistan, Germany, Poland, the USA, Italy, Kazakhstan and France; the share of the Russian Federation in the import of goods is 37%.

Economy of Ukraine