Ukraine’s economy will shrink by 3.5% in 2020 due to the coronavirus-related crisis, while the global economy will lose 5.2% overall, the World Bank announced this in the updated Global Economic Prospects on Tuesday. “The depth of the contraction will depend on the duration of the health crisis, progress on major pending reforms, and the ability to mobilize adequate financing to meet sizable repayment needs,” the World Bank said.
According to the bank, next year the growth of the Ukrainian economy will resume at a rate of 3%, which is lower than the expected recovery of the global economy at 4.2%.
The World Bank said that compared with the previous forecast in January of this year, it worsened expectations of the dynamics of Ukraine’s GDP this year by 7.2 percentage points (pp), and in the next – by 1.2 pp.
The World Bank’s Board of Executive Directors has approved in the early hours of Tuesday $135 million in Additional Financing for the Serving People, Improving Health Project, to scale-up Ukraine’s health sector response to the coronavirus (COVID-19) pandemic, the bank said in a statement.
“This additional financing will help Ukraine upgrade up to 40 hospital emergency departments and stroke units, enabling hospitals to perform complicated medical procedures using hi-tech equipment and appropriate treatment protocols,” World Bank Acting Country Director for Belarus, Moldova, and Ukraine Alex Kremer said, adding that patients will have an opportunity to choose any hospital in Ukraine, and their costs for surgical operations will be covered by the state budget.
The World Bank recalled that the ongoing Serving People, Improving Health Project, with the initial $215 million investment, provides assistance for renovation of urban hospitals and rural health posts, purchasing of modern equipment, and improvement in the quality of health services. The funds were focused on supporting health reforms, improving services delivery (including primary and secondary prevention, early detection, and treatment of cardiovascular diseases and cancer), as well as enhancing the efficiency of the health care system.
The additional $135 million will help Ukraine with important hospital upgrades and reforms, and also help train thousands of Ukrainian doctors in the provision of modern medical services, the bank said.
The project will also help fund people’s medical needs, from the state budget, and provide $35 million for COVID-19 emergency response activities. These funds will be used to buy essential materials and equipment for the country’s COVID-19 response, provide much-needed training for medical personnel, and support communication of essential public information. It will also cover reimbursement of financing to Ukrainian providers of health care for COVID-19 patients.
President of Ukraine Volodymyr Zelensky has emphasized that the International Monetary Fund (IMF), the World Bank, the European Bank for Reconstruction and Development (EBRD) and other financial organizations were ready to help Ukraine amid the coronavirus pandemic. “Yesterday I had a conversation with IMF Managing Director Kristalina Georgieva. Our international financial partners, including the IMF, the World Bank, the EBRD assured us of their readiness to support and help Ukraine,” he said in an appeal to Ukrainians on Monday, March 23.
The World Bank has improved the forecast for Ukraine’s GDP growth in 2019 from 3.4% to 3.6%, World Bank Senior Economist Anastasia Golovach has said.
“For 2019, we do not expect any surprises and we think that Ukraine’s GDP will grow by 3.6%. A good indicator, but external risks, in some way, are increasing for Ukraine, so the structural transformation of the economy is important,” she said at a press conference in Kyiv on Tuesday.
She noted that maintaining the current rate of economic growth will require an increase in capital investment, which amounted to 10% last year. This will require a greater influx of foreign direct investment.
At the same time, the bank kept forecasts of economic growth in 2020 at 3.7% of GDP, in 2021 at 4.2%, she said.
According to the banker, the deficit of the balance of payments in Ukraine in 2019 is expected to reach 3.1% of GDP, however, due to the potential loss of gas transit revenues and the unfavorable situation in the world markets, this figure will increase in 2020 and 2021 to 3.6% and 3.8% of GDP.
“But subject to rapid reforms, we expect in the next month that Ukraine will be able to maintain the economic growth rate at 3.7% in 2020 and accelerate it to 4.2% in 2021,” Golovach explained.
“An important factor in reducing pressure on the budget deficit is control over current budget expenditures and a balanced reduction in the minimum wage this year – only at the level of 12%, which is very contrasted with the previous years,” Golovach said.
Moreover, according to her, inflation will continue the downward trend: from 9.8% at the end of last year to 6.4% by the end of this year, as well as 5.5% and 5% in 2020 and 2021 respectively.
According to the bank’s expectations, in 2019 the deficit of the national budget of Ukraine will show a decrease to 2.1% in 2020 and 1.9% in 2021.
The World Bank believes that the level of public debt of Ukraine will also continue to decline this year to 51.7% of GDP. At the same time, the bank maintained the forecast for its further growth in 2020 and in 2021 to 54.6% and 55.3% of GDP respectively.
The World Bank has expressed its strong support to land reform in Ukraine and praised its necessity to all market participants.
“The World Bank strongly endorses the plans of Ukrainian leadership to open the agricultural land market. Land reform is needed for Ukrainian farmers to buy and sell agricultural land, access credit, invest and diversify, as well as land owners to get proper return for their most valuable asset,” the World Bank said in its statement posted on Facebook on November 9.
The statement reads that all farmers, including small, medium and large, and landowners will benefit from the opening of the land market.
“It raises economic growth as well as living standards of all Ukrainian people by unleashing the country’s agricultural potential. The planned reform also includes measures to limit land concentration, stop raider attacks and provide financial assistance for small farmers. Two decades of a closed market and non-transparency that fosters corruption are enough: the time for land reform is now,” the World Bank said.
The World Bank, taking into account the results of H1 2019, has improved its forecast for gross domestic product (GDP) growth in Ukraine in 2019 from 2.7% to 3.4%, expecting that it would accelerate to 3.7% and 4.2% in 2020 and 2021 respectively.
“If the new government is able to deliver on its ambitious reform goals, growth can increase to 4% by 2021,” the World Bank said in its October report entitled “Migration and Brain Drain.”
The analysts said that this will require progress in the following areas: reviving sound bank lending to the enterprise sector by completing the reform of state-owned banks; attracting private investment into tradable sectors by establishing a transparent market for agricultural land, demonopolizing key sectors and strengthening antimonopoly policy and enforcement, privatizing state-owned enterprises, and tackling corruption; and safeguarding macroeconomic stability by addressing current expenditure pressures, securing adequate financing, further reducing inflation, and rebuilding international reserves.
If reforms do not progress and adequate financing is not mobilized, growth could fall below 2% as investor confidence deteriorates, macroeconomic vulnerabilities intensity, and financing difficulties force a compression in domestic demand. Ukraine will need to safeguard macroeconomic stability and manage fiscal risks.
According to the expectations of the World Bank, in 2019, the deficit of the national budget o Ukraine would be 2.2% of GDP. The figure would decrease to 2.1% of GDP in 2020 and to 1.9% of GDP in 2021.
According to the World Bank’s forecast, the public debt will also continue to decline this year to 53% of GDP, but will grow in 2020 and in 2021 to 54.6% of GDP and to 55.3% of GDP, respectively.
As indicated in the materials, the current account deficit will continue to grow: in 2019 – to 3.5% of GDP, in 2020 – to 3.8% of GDP and in 2021 – to 4.3% of GDP.
At the same time, the bank expects a slow increase in net foreign direct investment (FDI) inflows in 2019 and 2020 to 2.2% of GDP and 2.3% of GDP, respectively.
At the same time, inflation will take a downward trend: from 9.5% at the end of last year to 6.8% this year, as well as 6% and 5.4% in 2020 and 2021, respectively.
According to the report of the World Bank’s experts, the main risk for the Ukrainian economy is formidable financing needs. So, according to the analysts, it will take about $11 billion per year, or 8% of GDP, to pay off government debt and finance the budget deficit in the current and next two years.
“To raise the necessary financing, it is critical to maintain the reform momentum and fiscal discipline, while continuing cooperation with development partners,” the bank said in the report.