The level of the shadow economy in Ukraine in January-September 2020 amounted to 31% of GDP, which is 3 percentage points (p.p.) more compared to the same period in 2019, according to an analytical report of the Economy Ministry.
“The spread of the pandemic and the complication of the conditions for economic activity, formed as a result of the introduction of forced restrictive measures, led to the growth of the shadow economy in Ukraine. According to preliminary calculations of the Economy Ministry, the level of ‘shadow’ in January-September 2020 amounted to 31% of the volume of official GDP, which is 3 p.p. more than January-September 2019,” according to the repot posted on the ministry’s website on Wednesday.
At the same time, the ministry said that different methods show different dynamics of the level of the “shadow” in the economy, which indicates the atypical nature of the coronavirus crisis in comparison with other crisis periods.
So, of the four methods used to assess the “shadow”, the growth of its share over the nine months of last year compared to January-September 2019 was shown only by the method of unprofitability of enterprises – by 12 p.p., to 32% of GDP, according to the materials of the Economy Ministry.
Two more methods showed a reduction in the share of the shadow economy in Ukraine over the specified period: by 1 p.p., to 23% of GDP – according to the method of population expenditures – retail trade and services, and by 1 p.p., to 25% of GDP – according to the electric method.
“Considering the reasons that led to a reduction in the shadow economy by these methods, it is worth noting the presence of objective factors caused by the coronavirus crisis that limited the channels for carrying out shadow activities. In particular, in trade there was a limited possibility of selling goods on unorganized sites,” the ministry said.
As for the result of the assessment using the electric method, the decline in production due to the contraction of the world economy and the investment pause affected this, so that the reduction of the “shadow” according to this method is a purely mathematical result, the Economy Ministry said.
At the same time, according to the monetary method, the dynamics of the shadow economy in January-September 2020 remained unchanged – 31% of GDP.
As noted in the analytical report, most types of economic activity showed a tendency towards an increase in the level of the shadow economy.
In the sectoral context, the highest level of “shadow” in the past year was recorded in the sector of transport, warehousing, postal and courier activities – 54% of the gross value added of the industry, which is by 22 p.p. more than the indicator for the nine months of 2019.
In the mining industry, according to the ministry’s estimates, the level of the shadow economy increased to 39% and in real estate transactions by 14 p.p. up to 44%.
In financial and insurance activities and agriculture, the ministry recorded a decrease in the share of the “shadow” in January-September 2020 by 4 p.p., to 27% and by 2 p.p., to 30%, respectively.
Among the factors that affect the shadowing of the economy, the ministry named a low level of protection of property rights, a poor judicial system, a high level of corruption, as well as the presence of territories which are not controlled by the government.
The share of the shadow economy in Ukraine should decrease from 30% of GDP (according to calculations of the Ministry of Economic Development, Trade and Agriculture for 2018) to no more than 20% of GDP by 2025, according to Strategy of Ukrainian Financial Sector Development until 2025 approved by the regulators of the financial market on January 16. According to the document post on the website of the National Bank of Ukraine (NBU), the total volume of public debt for this period should decrease from 52.3% to no more than 40% of GDP, the deficit of public debt – from 2.1% in 2019 to 1.5% at the end of 2024. It is envisaged that the share of state-owned banks of the assets of the banking system over this period will decrease from 60.1% to no more than 25%.
The share of non-performing loans (NPL) in the banking system will decrease and will not exceed 10% of the total volume of loans (52.9% in 2019). At the same time, net loans in foreign currency of the total volume of net loans will decrease from 41.4% to no more than 30%, and deposits in foreign currency will not exceed 30% of the total deposits (41.7% in 2019).
The volume of net bank loans will increase from 16.5% to 22% of GDP, and the level of penetration of lending to SMEs – from 1.4% to 3% of GDP.
The cash (M0) and GDP ratio will decrease from 9.2% to no more than 7.5%. The share of banks issuing cards of the Prostir national payment system will increase from 21.5% to more than 70%, and the acceptance of Prostir payment cards will increase to more than 99%. The level of public confidence in the financial system will increase from 10% to 60% by 2025, the index of the level of financial literacy – from 11.6 to 12.5.
The level of shadow economy in Ukraine in 2018 decreased by 2 percentage points (p.p.) compared to 2017, to 30% of the volume of official GDP, which is the lowest indicator since 2009, the Ministry of Economic Development and Trade has reported. “All the methods used for assessment of the level of shadow economy showed a decrease compared to 2017,” the document says. According to the report, the highest level of shadow economy was traditionally revealed by the method “population expenditures – retail turnover” at 46% of GDP, which is 2 p.p. lower compared to 2017.
Electric and monetary methods showed a decrease in the level of shadow economy by 1 percentage point each, to 27% and 23% of GDP respectively.
The level of shadow economy according to the method of loss-making enterprises fell to 18% of GDP, which is 4 p.p. less than in the same period of 2017.
In terms of sectors, the highest level of shadow last year was recorded in the sector of financial and insurance activities at 40% of the gross value added of the industry, which, however, 10 percentage points better than the 2017 figure. In the mining industry, according to the ministry’s estimates, the level of shadow economy declined by 8 percentage points, in trade by 5 percentage points, and in real estate transactions by 4 percentage points.
